Financial Planning and Budgeting
( 10 Marks)
The basic ideas justifying the use of Activity Based Costing (ABC) and Activity Based
Budgeting (ABB) are well publicized and the number of applications has increased. However,
there are apparently still significant problems in changing from existing systems.
Explain which characteristics of an organisation may make the use of ABC useful and
the problems that may cause the organisation not to use or abandon ABC
Discuss the components of a master budget and Discuss the importance of Financial Planning and
Distinguish between capital structure and financial structure
Case Study 1
Steve and Mary Jo, both 35 years old, own a house worth $150,000 and have a yearly income of
$50,000, monetary assets of $5,000, two cars worth $20,000, and furniture worth $10,000. The
house has a $100,000 mortgage, they have college loans of $10,000 outstanding, and the cars have
outstanding loans of $10,000 each. Bills totaling $1,150 for this month have not been paid ($1,000
is to pay off their credit card that they use for bills).
Using the data above, create a balance sheet to calculate Steve and Mary Jo’s net worth.
How are they doing?
Case Study 2
Steve and Mary Jo, who make $50,000 per year, calculated their average tax rate at 15 percent.
They contribute 12 percent of their income to charity and pay themselves 10 percent of their
income. They have 25 years and $100,000 remaining on their 6-percent mortgage ($7,730 per
year), three years and $20,000 remaining on their 7-percent auto loan ($7,410), and 10 years and
$10,000 remaining on their 3-percent college loan ($1,160). In addition, utilities and property
taxes were $2,270 per year, food was $6,000, insurance was $1,500, and other expenses were
Calculate their income statement using the “better” method, and round values to the
nearest $10. How are they doing?
Case Study 3
Steve and Mary Jo would like you to help them understand where they are financially. You have
Steve and Mary Jo’s balance sheet and income statements, which were prepared earlier.
Calculate each of the six key liquidity, debt, and savings ratios. Using the data and calculations,
comment on how well they are doing. What can and should they be doing to improve?
or ORDER A CUSTOM PAPER