Welcome to module four of your course. Now we're really going to start to integrate the information that you did particularly in models two and three. And that integration is also going to help you see how the information on the financial accounting courses does integrate with the decision-making courses that you have taken. So this is a really nice integration module. And hopefully you will find it informative in terms of either starting your business or charitable organization, or working with something that you're already involved in. So specifically, when we are looking at the planning, we also are thinking about the performance. And so the information that we had developed in module two, for the expenses, will now become part of a budgeted income statement. A budgeted income statement is no different than a traditional income statement. In the heading it has the word budgeted instead of just the words income statement. You will directly use what you found in module two and put that into your budgeted income statement. Remember to use that as a period of time, probably you want to include a full year of activity. And you want this budgeted income statement, again this is a realty check, is your business going to be profitable? Is it going to be sustainable? Most of us cannot afford to start an entity just for the fun of it and not have it be profitable. So at this stage, we are getting additional information to see if our estimates make sense. So, in this budgeted income statement, you are going to include three different levels of activity. Either the products you sell, the number of hours of services that you provide in a service entity, or the number of people that are helped in your charitable organization. So, those will be different activity levels. And one of those activity levels needs to be breakeven, where profit is zero. And then I suggest that you use one activity level that's higher, and one activity level that is lower. So if you look at the template for the budgeted income statement with the different activity levels, you will see the format. And there is a separate template whether you are looking at something that has either manufacturing or the sale of inventory and a different template for services versus charitable. They don't look a lot different than what you have seen in all four of your prior courses. Again, it's just that word budget is in there and that you're going to have three sets of information on the different activity levels. And again, we want to get an idea of, is this actually something that's going to work. Now, with that budgeted income statement, that will allow you to do breakeven analysis. This is something that was directly involved in your decision making courses. So you want to make sure that you can break down what are your fixed and variable costs, so that you can determine your breakeven. And actually that will feed into your budgeted income statement for that activity level that is at breakeven. So what is the minimum sales receipts that you need to breakeven? And don't forget to include your expenses, your compensation as well, because that is part of breakeven. Now, when we have completed the breakeven analysis, if you recall, that leads into something called cost-volume-profit analysis. This is more in-depth than breakeven, it's what I call what if analysis. So that it provides different scenarios, what if I change the selling price? What if I could negotiate a better cost on expense or better cost on an asset? And what I want you to do is develop four different what if scenarios. And we're going to use that going forward to help you in your internal decision making. So this overall assignment, again, is to look at the viability of your entity with a budgeted income statement along with that breakeven analysis and then look at what if something changes. Maybe you prepare the cost-volume-profit analysis based on what you think the environmental conditions are where you will operate. So your what-if analysis can have different motivations. Once again, be creative tailor it to your business, just make sure that it makes sense, okay? It has to make sense because that will be part of your peer review and that will be part of what is your final project or final product at the end of the capstone course. So, again don't forget to look at those resources that are available for you on that budgeted income statement with multiple activity levels. So, this is as what I just described is what you want to produce in module four, what your peer reviewer is going to look at is those items that you produce. Again, make sure that you read that business description, it can change every single module and that is completely fine. And you may see that they have also updated their expense list based on redeveloping their business description. That is okay as well. It is important that you read the description and read any attachments before you get into reviewing the actual current assignment. When you review the budgeted income statement, it's really as I said, do the amounts make sense? Here is you opportunity to provide some constructive feedback. If you think something is maybe not a necessary expense, certainly at start up, or maybe they've actually missed something. So that will be part of the peer review process on the budgeted income statement. Also part of that budgeted income statement review will be for the breakeven analysis. And the key there will be have they separated their total cost into the fixed and variable components? Because that is the key to breakeven. So you've completed the budgeted income statement review, you've done the breakeven analysis review, and then you get into the review of the what if scenarios. What if something changes, either in the sales, the cost structure, the volume of the entity, as compared to what was presented to you in the budgeted income statement. Consider how those what if scenarios will affect breakeven. See how those what if scenarios may make the entity more valuable, even if it doesn't necessarily result in a higher profit right away. So, again, you want to look at the overall viability and what is reasonable for that cost-volume-profit analysis. This hinges on again, on reading that business description, and thinking in terms of what are the types of expenses, how would you generate revenue base for that particular business? So when you do your peer review, you have to keep that in mind. And of course as I've said, you want to provide constructive feedback as part of your peer review. That is really one of the biggest benefits that you're going to get throughout the Capstone course, is providing that constructive feedback. So here, in module four, we're looking at decision making tools. Budgeted income statement, breakeven cost-volume-profit analysis. And then you’re going to go more in depth in module five, when you actually look at how all that information affect your internal decision-making. Going through this process is not just a check list, it's not just saying, okay I did it. You actually go through the process so that you can use the information to improve your overall business. So take the time to go through module four. Think about the fact that this is going to give you information about the overall possible sustainability of the organization. And then while you're going through this process, think ahead to module five because you're going to think about, in that module, how you use the information for internal decision making process. And again, this has a lot to do with what you learned in the Making Decisions portions of the courses. So feel free to go back and review those to help you along the way.
