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Milestones 2 and 3 and Final assessment.
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Ashley Arbogast November 7, 2024 Managerial Accounting Milestone 2 I. Marj’s Magical Memory Medicine is a new up-and-coming business started by Marjorie Majors. Her business objective is to produce and sell memory medicine to individuals with memory loss. She is currently in the process of preparing items needed for budgeting documents for her new business. To align finances with the business goals, budgets must be put in place. Marjorie’s business budgeting will allow her to set clear goals and control spending while saving for any future needs of the business. Budgeting is an important aspect in any business as it focuses on maximizing financial resources and promotes business success and stability. The business budget should begin with the Sales Budget because all of the other budgets are dependent on the estimated sale volume. The budget plan itself must follow a specific order to ensure that all revenues and expenses are accounted for. This also assists in making business decisions such as how to allocate finances and meeting financial goals. Each part of the budget has a specific function and plays a role in the overall budget of the business. I have provided the proper sequence of the budget and the purpose of each below:
Two examples of variable costs for a bakery that sells bread to retail stores, would be ingredients and labor. Regardless of how many loaves the bakery must make, the ingredients needed to make each loaf of bread are the same. The more bread that is needed to be made requires more ingredients to be on supply. Hence, more out of pocket expenses are incurred to produce the necessary loaves of bread required for the retail store. When the demand for the bread increases, so does the need for labor. Which results in the bakery needing to increase the number of hours worked of their current bakers or hire more bakers to meet production goals. I believe that fixed costs tend to be higher than variable costs because there is no flexibility with these expenses. Unlike variable costs, fixed costs remain the same no matter the production volume. When there are many fixed costs within a company and production and demand are low, this can affect the business’s bottom line. In order to make a profit, the company must generate more revenue than if they had less fixed costs and more variable costs. For instance, if a company has a fixed facility monthly rent of $7,000, they will have to pay this amount every month, regardless of if they produce 1,000 or 10,000 products. I think that UMPI Manufacturing would have the greatest increase in profits if sales increased because the majority of their expenses are fixed. Since fixed costs remain the same regardless of production volume, the company would not have to drastically change their allocated resources to keep up with demand. In turn, they would reap the benefit of the increased sales by earning more profit.