CFOS Unit7
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Unit 7 |
Introduction | Incremental Budgeting | Zero-Based Budgeting | Periodic Zero-Based Budgeting | Service-Level Budgeting | Performance-Based Budgeting |
EXERCISE 7.1 - Incremental Budgeting
For the purpose of this exercise, you are a senior manager in charge of the Programmes and Materials Development Department of the Lagos Institute of Distance Education (LIDE). The annual budgeting process is underway, and you have been given a guideline amount that is 2.00% lower than for the current Financial Year (FY). However, because the Institute cannot afford to lose any of its permanent staff, who are highly trained and experienced, no cutbacks should be made in staff salaries or other benefits. In fact, in terms of existing agreements on pay and conditions of service, salaries for permanent staff will increase by 3.25% in the coming FY. As all other benefits for permanent staff are caculated on the basis of salaries, expenditure on these items will also rise by the same amount. Other budget lines, such as depreciation of buildings and equipment, are fixed for a number of years and cannot be reduced. Using the spreadsheet below, prepare estimates for your department using the incremental budgeting approach.
| Budget Line | Description | Approved Expenditure for Current FY | Estimated Expenditure for Coming FY | Increment (percent) Increase | Factor for Calculation |
|---|---|---|---|---|---|
| 1000 | PERSONNEL EXPENSES (Permanent Staff) | 3,337,000 | |||
| 1500 | TEMPORARY & CONTRACT STAFF | 935,000 | |||
| 2000 | TRAVEL & TRANSPORT | 349,600 | |||
| 3000 | SUPPLIES AND SERVICES | 7,632,700 | |||
| 4000 | PREMISES-RELATED EXPENSES | 210,300 | |||
| 5000 | DEPRECIATION (Buildings & Equipment) | 323,000 | |||
| 6000 | ADMINISTRATION EXPENSES | 194,900 | |||
| TOTAL RECURRENT EXPENDITURE | 12,982,500 | ||||
| GUIDELINE AMOUNT | 12,722,850 | -2.00% | 0.98 |
If you need some help with this exercise, click on Exercise 7.1 - Tips
