Planning and Budgeting

Introduction

I’m the Service Manager in a service company that provides the after sales services and technical support to industrial machineries, it’s part of a group of companies specialized in trading the industrial equipment. The product range of our sister companies varies from small portable machines like welding and plasma cutting machines to the capital CNC machine-tools machineries, which are exclusively distributed by them. The company categorizes these machines based on the technology.

Our objective is to provide outstanding services to those machines since the company is responsible to install and commission them, train customers how to operate them, and perform the repair work when a breakdown occur, 85% of the company business volume coming from these services. All after sales services products offered by the company is grouped either in service range or parts range, and each one of them forms a separate department.

Importance of this topic to the business

The company has two main objectives; the first one is to achieve at least 15% net profit target at the end of the fiscal year, therefore all expenditures should be determined along with the expected sales, these two factors will determine the net profit at the end so both of them should be monitored and controlled throughout the year. Employing the right practice in budgeting and in budgetary control will help the company to achieve their net profit target and to take the corrective action during the year whenever the actual result has a significant variance from the budget.

The second objective is to satisfy customers expectations in service, customers satisfaction will help sister companies to sell more equipment and so their share in the market will be increased...

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...artments respectively, the breakeven point occurs when the sales line intersect with the total cost line. Once the service department breaks even, the net profit will be increased dramatically. In figure 1, the wide angle between the sales and the total cost after the breakeven point indicate a wide profit compared to the narrow angle in figure 2 that represent the profit in the spare part department.

But before the breakeven point, the wide angle between the sales and the total cost lines in service department, indicate a relatively big loss when it’s compared to the narrow angle in the spare parts department.

The breakeven values for each department are shown in table 2 below:

Service Spare Parts

Breakeven 5,882,060 8,958,412

Breakeven /sales 72% 66%

Table 2

The margins of safety for service and spare parts department are 28% and 34% respectively.