Partial Budget Analysis

is a tool to analyze incremental business changes such as buying additional machinery or equipment or buying land.

Considers all revenues and expenses that would change with an alteration to the business operation Considers all revenues and expenses that would change with an alteration to the business operation A planning tool that answers the question “What would happen if” A planning tool that answers the question “What would happen if”

ADVANTAGES A quick method of investment analysis A quick method of investment analysis It can show results of projected changes clearly It can show results of projected changes clearly It is not necessary to consider all costs in the business- only the costs and returns that will be changed by the investment It is not necessary to consider all costs in the business- only the costs and returns that will be changed by the investment It isolates the impact of a change It isolates the impact of a change

Purpose Defining the reason for a change Defining the reason for a change Listing the changes that can be done Listing the changes that can be done Answering the question “Will the changes pay?” Answering the question “Will the changes pay?” Answering the question “Is the change affordable?” Answering the question “Is the change affordable?” Deciding whether to do the change Deciding whether to do the change

Principles Small business changes have effects in one or more of the following areas: Increase in income Increase in income Reduction or elimination of costs Reduction or elimination of costs Increase in costs Increase in costs Reduction of income Reduction of income

Partial Budget: Defines the change analyzed BenefitsCosts Increase in Income What will be the new or added revenues? Increase in Cost What will be the new or added costs? Reduction or elimination of costs What costs will be reduced or eliminated? Reduction of Income What revenues will be reduced or lost? Total Benefits Total Costs Net Benefit

Components Added income Added income - usually an estimate but use realistic projections on production capacity and projections on production capacity and prices prices Added costs Added costs - List all increased expenses due to the change change - Includes non-cash costs such as depreciation

Reduced costs Reduced costs - could be reduction or total elimination of certain expenses certain expenses - may also include unpaid labor * Reduced income - may include reduction in product sales sales

Steps in Preparing a Partial Budget 1.Rationalize the reason for the change 2.List possible alternatives 3.State the proposed change 4.List the reduced costs 5.List the expected added returns/revenue 6.List the added costs 7.List the reduced income

8.Estimate change in firm’s net income 9.Cash flow projection 10.List other considerations 11.Deciding whether to make a change

PARTIAL BUDGET (Annual Incremental Benefit of the firm from the proposed SETUP intervention) Name: Albao Furniture ShopDate: 22 August 2014 Description of the Analysis: The projected net change is positive, indicating that the proposed SETUP intervention will be profitable to the enterprise. The decrease in income as a result of the annual refund will be offset by the significant increase in sales. Increases in Net Income, PhpDecreases in Net Income, Php Increase in IncomeDecrease in Income 2012 Gross Sales - 1,500, , SETUP Amortization 200, Gross Sales - 2,000, Total Increase 500, Total Decrease 200, Decrease in CostIncrease in Cost 2012 COGS - 900, , COGS - 875, Total Decrease 0 Total Increase 25, Increase in Net Income 500, Decrease in Net Income 225, Change in Net Income275,000.00