Budget Issues

1. WOODY TOY
REPAIR SHOP
Adjusted Budget & Recommendations for Second Quarter of 2017
To:
From:
Date:
Re:

2. Introduction
The adjusted and unadjusted budgets both have been prepared for Woody Toy Repair
Shop and issues including the increasing expenses and the decreasing revenues have been
studied. These findings have been taken from the adjusted budget of the shop. Following is a
detailed formal report for Woody, the owner of Woody Toy Repair Shop in order to evaluate and
understand the various findings and adjustments to the budget:
Discussion/ Analysis
Correct Budget Format:
The company must use the corrected format so that various expenses can be properly classified
as either fixed payment or variable payment. The business has to make the fixed payment
regardless if it is operating or not or making a profit or not. To vary fixed expenses, strategic
changes are required e.g. downsizing, smaller plant etc. However, the variable payments can
increase or decrease overtime depending on various factors such as usage, hours of operations,
returns etc. This classification will help the business in ascertaining what minimum amount it
should have to cover the fixed payments provided no variable payments are to be made.
Therefore it is very important for Woody Toy Repair Shop to maintain a proper budget format
for recording all its expenses and revenues.
Updated Budget:
The company should keep an updated budget because this will help to depict a true picture of the
most recent operations regarding cash. This will particularly help the business if it tries to get

3. some loan from some bank or other financial institution. As far as the business is concerned, the
updated budget will give a true and fair view of the position of the business.
Budgeted & Actual Expenses and Revenues:
This will give a clue about the ability of the staff to foresee the future. If the actual figures are
near about to the budgeted figures, the staff has the ability to realistically foresee the future. If
the difference is considerable then the organization has to rethink the basis on which forecasts
are based.
Increasing Revenue (Recommednations):
Woody can consider some of the following advices in order to increase his revenues:
 The revenue can be increased by increasing the number of customers which can
be done by proper and effective advertising.
 The company can increase the average transaction size which can be done by
offering discounts on certain products. This can also be achieved by offering
something extra to the customers.
 Increasing the frequency of transactions per customer means that the number of
times a customer buys from you can be increased. This can be done by proper
advertising campaign.
 Raising the prices is also an option but that is the least suggested one. It may lead
to decrease in sales which the company cannot afford at the moment.
 Woody is continuously purchasing assets either on cash or on short term credit.
This adversely affects the company’s cash source. In the present situation he
should asset purchases. If purchasing is mandatory, it should not be done with

4. cash payment but with long term credit payments to minimize effect on the
company’s financial standing.
 Woody Toy Repair Shop is currently making most of its sale on credit. Under
current conditions this should be avoided. Cash sales should be encouraged
amongst customers by introducing discounts on cash purchases. Credit sales, if
necessary, should be of short term with payment within a period of one month.
Reducing Expenses (Recommendations):
Some of the steps that can be taken to reduce the expenses and hence increase revenues can be:
 The working week is 5 days, if Rosy works for three days, she should not get full
5 days worth of salary.
 The workers should not be allowed personal calls from the office phone.
 The personal mobile phone bill should be paid out of the pocket of the owner, not
through business cheque.
 Newspaper is not an appropriate mode of advertisement for a toy shop. It should
rather use banners and hoardings which will cost less and be more effective at the
same time. Or it can contact the local TV channels for on air promotions. It can
further invite children along with their parents for factory visits to increase the
interests of the customers.
 Despite having a kitchen, the owner buys food from outside the shop. Stopping
this happening can save certain amount of money as well.

5.  Woody himself is drawing a large amount each month from the business. This
should be discouraged and the drawings be decreased both in value as well in
frequency. This will improve the company’s cash accounts.
 Power usage in both summers and winters should be controlled. Usage of AC and
heating machine should be restricted.
Conclusion
Above are some recommendations for Woody that will be helpful for him in the future so that
the revenues and expenses of Woody Toy Repair Shop can be managed more effectively using
the available resources by proper budgeting. Increasing revenues and minimizing expenses
should be the prime target for Woody to sustain profitable business and growth.