BUSI 3016 Week 6 Quarterly Budget Memo Example

Memorandum

To: Owner, Ozark Comfort Heating & Air

From: Service Manager

Date: February 12, 2028

Re: Service department budget, March 1 to May 31, 2028

Summary

This budget projects $331,050 of service department revenue and $224,025 of direct costs for the spring quarter, leaving a contribution of about $107,000 toward the company's rent, insurance, office costs and profit. Spring is a shoulder season for our business, between the winter heating rush and the summer cooling rush, so every line below is an estimate built from last spring's records and adjusted for what we know has changed. Each line says where its number came from and how confident I am in it, so you can see which guesses matter most.

The Budget

Table 1

Service Department Budget, March to May 2028

Ozark Comfort Heating & Air and its budget are composite.

Where Each Number Came From

Repair call revenue: last spring we ran 1,060 repair calls, and calls grew about 7.5 percent last year, which gives 1,140; the $245 average ticket is last spring's figure. Confidence is medium because spring calls depend on the weather, and a warm April can add a hundred calls while a cool one can take them away.

Maintenance visit revenue: we have about 2,000 active maintenance plans, each with a spring cooling tune-up, and about 35 percent of those visits usually happen between March and May, with most of the rest in June, giving 690 visits at the $75 per visit we recognize as revenue. Confidence is high because the plans are already sold.

Parts and materials: parts ran 24 percent of repair revenue last spring, and our main supplier raised prices about 4 percent in January, so I used 25 percent. Confidence is medium because the mix of repairs changes what we use.

Technician wages: five technicians at an average of 45 hours a week for 13 weeks, at $34 an hour including payroll taxes and benefits. Confidence is high because staffing and pay rates are set.

Van costs: last year's average of $1,150 per van per month for fuel, maintenance and lease payments, assuming diesel stays near $3.40 a gallon. Confidence is medium because fuel prices move.

Dispatcher and service manager share: the portion of their pay charged to the service department, from payroll. Confidence is high.

Spring tune-up campaign: the advertising amount you approved in January. Confidence is high.

What Would Change the Picture

The two medium-confidence revenue and cost lines matter most. If calls come in 10 percent below plan, about 114 fewer calls, revenue falls by roughly $28,000 and parts costs by about $7,000, so contribution falls by about $21,000. If calls run 10 percent above plan, contribution rises by a similar amount, and we would need overtime. I will report actual calls against the budget every two weeks so we can adjust overtime and marketing early.

Why the Budget Is Built This Way

Garrison et al. (2021) describe a budget as a quantitative plan that also serves to coordinate and to set expectations; giving every line a stated source makes the plan easier to check later. Hope and Fraser (2003) criticized budgets that become fixed targets disconnected from changing conditions, which is why this one marks its uncertain lines and includes a review every two weeks. Datar and Rajan (2021) note that comparing actual results with a budget is most useful when each assumption is clear enough to explain any difference.

References

Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial accounting (17th ed.). McGraw Hill.

Hope, J., & Fraser, R. (2003). Beyond budgeting: How managers can break free from the annual performance trap. Harvard Business School Press.