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Budgets Exercise

Budget Exercise

The Business School at the University of South Britain (USBBS) is concerned that its students are disadvantaged by a lack of work experience.

They obtain permission from the University to run a pilot employability project for one academic year for which they will obtain funding from UBS and the local development council as part of various government schemes.

A part-time member of staff will be employed who will be charged to school at £1,000 per month.

The project will be based in a central building for which the university will charge USBBS £500 per term paid in October, January and April.

USBBS will also have to pay for additional IT support. There will be an initial setup charge of £200 and further payments will be via a ‘call-off’ contract up to a maximum of £600.

Postage and stationery is estimated at an average of £580 per month, payable as the cost is incurred.

They have agreed a ‘marketing budget’ of £2,500. Half of this will be spent at the beginning of the year to inform students and employers about the new project. The rest will be spent as required.

The project will make a standard contribution of £250 per month to USBBS to cover the shared costs such as printing, copying etc

Telephone bills are estimated to come to about £200 per month. A monthly fee of this amount is paid to the university, but this is adjusted at the end of each term (December, March and July) to take account of any underpayments.

Any other costs will be paid for as they occur.

The funding will be provided by an annual grant of £14,000 from USB paid in equal instalments in October, January and April and by an annual grant of £18,000 from the local development council. This will be split into six monthly payments starting in January.

The project is not expected to end the year with a surplus but it is not permitted to show a deficit at the end of the academic year.

Complete the Employability project’s cash flow budget for the academic year October to July.

How much slack is there in the budget for ‘other costs’?

How could the project avoid large negative variances in some months?