Study Document
Break Even Analysis and Planning Essay
Pages:3 (898 words)
Sources:3
Subject:Mathematics
Topic:Break Even Analysis
Document Type:Essay
Document:#80883884
Flexible Budgeting
Flexible Budget
Levels (in millions)
Competitor
Corporate
Economic
10% Rate
9% Rate
% Rate
Revenue
Company Operating Stores
Licensed Stores
CPG, food service, & other
Total Revenue
Cost of Sales
Total Operating Expenses
Total Cost
Income from equity investees
Operating Income
Interest Income
Interest Expense
Earnings Before Tax
Income Tax
Net Earnings
This flexible budget was done for Starbucks Corporation and is an annual budget for the year 2012. Caribou Coffee is one of Starbucks Corporation's largest competitors. Caribou Coffee's annual projected sales growth for 2012 is 10%. (Caribou Coffee Reports Fourth Quarter and fiscal Year 2011 Results, 2012). Even though Caribou had a consolidated sales increase of 15.0% for the year 2011, for a competitive basis, a flexible budget was done based on the 10% annual projected increase for the year 2012.
Starbucks had a sales growth of 6% decrease for 2009, 7% increase for 2010, and an 8% increase for 2011. (Starbucks Investor Relations, 2011). The tax rate for 2011 was 31.1% and for 2010 was 34.0%, with 2012 tax rate projected for 33%. If profits increase 1%, then the taxes will probably increase the 1% as well. For a forward looking picture, the corporate rate was based on a 1% increase due to the sales growth of 1% more in 2011 than in 2010 and the year of 2009 was ignored due to being a bad year.
The economic growth rate for 2011 was an average of 1.625% quarterly increase. (United States GDP Growth Rate, 2012). The quarterly growth rates were 0.4 for quarter 1, 1.3 for quarter 2, 1.8 for quarter 3, and 3.0 for quarter 4. There are problems with the GDP. The per capita does not give much information for distribution of income in a given country. It does not take into effect the negative externalities, such as pollution from the economic growth. It does not take into effect the positive externalities that may result from services, such as education and health. And, it excludes the value of the activities outside the marketplace, such as leisure and organized crime, which are factors Starbucks Corporation faces. The annual growth rate comes out to 6.5% and it was used for the economic growth rate to figure into the flexible budget.
Managers are responsible for the controllable costs in their department, or unit, and for maximizing revenues. The flexible budget helps managers control the operations and compare actual results with planned objectives. (Accounting Principles, 8th Ed.). Flexible budgets provide feedback on operational activities by analyzing the differences and the causes of those differences. The comparable results show favorable and unfavorable conditions, which show managers what areas are performing well and which ones need changes.…
Sample Source(s) Used
Bibliography
Starbucks Investor Relations. (2011). Retrieved from Starbucks Corporation Fiscal 2011 Annual Report: http://investor.starbucks.com/phoenix_zhtml?c=99518&p=irol-reportsAnnual
Caribou Coffee Reports Fourth Quarter and fiscal Year 2011 Results. (2012, Feb 22). Retrieved from Business Wire: http://www.business wire.com/news/home/2012.../Caribou-Coffee-Reports-Fourth-Quarter-Fiscal-Year
United States GDP Growth Rate. (2012, May 7). Retrieved from Trading Economics: http://www.tradingeconomics.com/united-states/gdp-growth
Accounting Principles, 8th Ed. (n.d.). Retrieved from Budgetary Control and Responsibility Accounting: http://highredbcs.wiley.com/legacy/college/weygandy/0471980196/ppt/ch24.ppt
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