Show how you would prepare the partial budget using the total approach and gross margin approach? using specimen figures ?

Total Approach:

1. List all the changes in revenue and expenses that will result from the decision being considered. For example:
- Increase in revenue from selling additional product: $10,000
- Increase in variable costs associated with producing additional product: $5,000
- Increase in fixed costs associated with expanding production capacity: $3,000

2. Calculate the net change in revenue and expenses:
Net change = Increase in revenue - Increase in variable costs - Increase in fixed costs
Net change = $10,000 - $5,000 - $3,000
Net change = $2,000

3. Determine the impact on net income:
Net income = Net change in revenue and expenses - Opportunity cost
Net income = $2,000 - $500
Net income = $1,500

Gross Margin Approach:

1. List all the changes in revenue and variable costs that will result from the decision being considered. For example:
- Increase in revenue from selling additional product: $10,000
- Increase in variable costs associated with producing additional product: $5,000

2. Calculate the net change in gross margin:
Net change = Increase in revenue - Increase in variable costs
Net change = $10,000 - $5,000
Net change = $5,000

3. Determine the impact on net income:
Net income = Net change in gross margin - Increase in fixed costs - Opportunity cost
Net income = $5,000 - $3,000 - $500
Net income = $1,500

In this example, both the total approach and gross margin approach result in the same net income of $1,500.