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BUS 5110 Portfolio Activity Unit 5 BUS 5110 Portfolio Activity Unit 5

This document discusses budgeting for a service company called A2Z IT Consulting Inc. compared to a manufacturing company. As a service company, A2Z IT Consulting's operational budget includes sales revenue, labor budget, and SG&A budget. Their financial budgets include an income statement, cash budget, capital expenditures budget, and balance sheet. Their master budget focuses on projecting revenues from customer sign-ups rather than inventory. Their balance sheet does not include a cost of goods sold section like a manufacturer and assets are noted as accounts receivable rather than raw materials inventory.

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413 views5 pages

BUS 5110 Portfolio Activity Unit 5 BUS 5110 Portfolio Activity Unit 5

This document discusses budgeting for a service company called A2Z IT Consulting Inc. compared to a manufacturing company. As a service company, A2Z IT Consulting's operational budget includes sales revenue, labor budget, and SG&A budget. Their financial budgets include an income statement, cash budget, capital expenditures budget, and balance sheet. Their master budget focuses on projecting revenues from customer sign-ups rather than inventory. Their balance sheet does not include a cost of goods sold section like a manufacturer and assets are noted as accounts receivable rather than raw materials inventory.

Uploaded by

ifeanyi ukachukwu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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BUS 5110 Portfolio activity Unit 5

Managerial Accounting (University of the People)

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BUS5110 Unit 5
Portfolio Activity 5
Instructor: Sr. Tewodros Tedla
Date: Dec 16 2020

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BUS5110 Portfolio activity 5 Unit 5


Service companies are companies such as consultants, accounting firms, financial

planners, and Insurance. These companies do not sell tangible goods to produce income; instead,

they provide services to customers according to specific expertise or specialty. Companies that

sell services often charge a base fees and hourly rates (Linton, 2019). A2Z IT Consulting Inc. is

one such company that I have worked for as an administrator. A2Z IT Consulting is a for Profit

Consulting company that provides a service of hiring and training individuals in Information

Technology and does not produce a tangible product (A2Z IT Consulting Inc, 2020). The

difference between a company that provides a service versus one that produces a tangible

product is that the manufacturing company sells tangible goods that an individual can touch and

feel that require raw materials to be manufactured (Linton, 2019).

As A2Z IT consulting is a service sector, it has an operational budget and a financial

budget (Kandar, 2015). The operational budget comprises of sales revenue, labour budget and

SG&A budget. The Financial budgets include a budgeted income statement, cash budget, capital

expenditure budget and balance sheet. A2Z IT consulting Inc. needs to focus on the direct labour

budget as the direct labour budget usually comprises most of its expenses (Kandar, 2015). For

A2Z IT Consulting Inc., a sales budget would be created as a starting point of their master

budget. This will forecast the new number of sign-ups of customers the company will receive in

the upcoming year. This information is gathered from the sales and sign-ups in the previous

years. The direct labour budget is an estimate of the number of instructors required to teach the

classes. Human Resource managers will forecast the budget for this.

Additionally, A2Z IT Consulting also has a Selling and Administration and General

(SG&A) budget, which estimates general expenses that support the sales and overall operation.

For A2Z IT Consulting Inc, this includes the receptionist, the administrative staff who make

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student admissions. The master budget for A2Z will also include a cash budget for cash inflows

and outflows, any expected borrowings or investments.

There are several differences in the balance sheet of a service company compared to a

manufacturing company. The raw materials come at a cost for a manufacturing firm. Whereas,

for a service-providing company, they do not have any raw materials. This is one of the

significant differences that can be seen in both the companies' financial statements in the cost of

goods sold section as A2Z IT Consulting will not have this section in their balance sheet.

The second most significant difference can be noted in the Asset section of the balance

sheet. For a service provider like A2Z IT Consulting, assets will be noted in the statement's

accounts receivable section. Whereas, for a manufacturing firm, inventory of the raw materials is

a significant chunk of the company's assets.

These differences can be significantly noted in the master budget of the companies. The

master budget for a manufacturing company will have raw materials, finished goods,

merchandise inventories for its production budget. The service industry will not have any of

these and costs and instead just cost associated services such as instructors fees, accounting fees,

high-speed internet fees, and licensing fees for the modules taught in the training center.

Therefore, the budgeting for A2Z IT Consulting will focus primarily on projections for revenues

generated from forecasting customer sign-ups. In contrast, the manufacturing firm's budgeting

will focus on projections from revenues generated from sales and forecasting labour needs for

the company (Heisinger and Hoyle, 2012). The increase or decrease in revenue for both types of

companies is also different. Service companies do not typically have enormous expense

accounts, meaning that fluctuations in net revenue are almost entirely a function of generating

sales.

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Word count 628

References:
A2Z IT Consulting Inc. Retrieved Dec 2020. https://www.a2zitconsultinginc.com/
Heisinger, K., & Hoyle, J. B. (2018). Accounting for Managers. lardbucket.org 2012.
https://www.topfreebooks.org/accounting-for-managers/.
Linton, I. (2019, March 7). Five Differences Between Service and Manufacturing Organizations.
https://smallbusiness.chron.com/five-differences-between-service-manufacturing-
organizations-19073.html.
Kandar, S. (2015, November 29). Budgeting in service sector. SlideShare.
https://www.slideshare.net/SutanuKandar/budgeting-in-service-sector.

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