ACC561 Wk6 UOPX Primary causes of loss in net income

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Question Description

Scenario: Green Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass, specializing in the boarding of broodmares and their foals. A recent economic downturn in the thoroughbred industry has led to a decline in breeding activities, and it has made the boarding business extremely competitive. To meet the competition, Green Pastures planned in 2017 to entertain clients, advertise more extensively, and absorb expenses formerly paid by clients such as veterinary and blacksmith fees.

The budget report for 2017 is presented as an attachment. As shown, the static income statement budget for the year is based on an expected 21,900 boarding days at $25 per mare. The variable expenses per mare per day were budgeted: feed $5, veterinary fees $3, blacksmith fees $0.25, and supplies $0.55. All other budgeted expenses were either semi fixed or fixed.

During the year, management decided not to replace a worker who quit in March, but it did issue a new advertising brochure and did more entertaining of clients.

Develop a minimum 700-word examination of the financial statements and include the following:

  • Based on the static budget report:
    • What was the primary cause(s) of the loss in net income?
    • Did management do a good, average, or poor job of controlling expenses?
    • Were management's decisions to stay competitive sound?
  • Prepare a flexible budget report for the year.
  • Based on the flexible budget report:
    • What was the primary cause(s) of the loss in net income?
    • Did management do a good, average, or poor job of controlling expenses?
    • Were management's decisions to stay competitive sound?
  • What course of action do you recommend for the management of Green Pastures?

Show your work in Microsoft® Word or Excel®.

Complete calculations/computations using Microsoft® Word or Excel®.

Format the assignment consistent with APA guidelines.

Unformatted Attachment Preview

Green Pastures Static Budget Income Statement ACC/561 Version 7 University of Phoenix Material Green Pastures Static Budget Income Statement For the Year Ended December 31, 2017 Actual Master Budget 52 60 8U 19,000 21,900 2,900 U $380,000 $547,500 $167,500 U Feed 104,390 109,500 5,110 F Veterinary Fees 58,838 65,700 6,862 F Blacksmith Fees 4,984 5,475 491 F Supplies 10,178 12,045 1,867 F Total Variable Expenses 178,390 192,720 14,330 F Contribution Margin 201,610 354,780 153,170 U Depreciation 40,000 40,000 -0- Insurance 11,000 11,000 -0- Utilities 12,000 14,000 2,000 F Repairs and Maintenance 10,000 11,000 1,000 F Labor 88,000 95,000 7,000 F Advertisement 12,000 8,000 4,000 U Entertainment 7,000 5,000 2,000 U Number of Mares Number of Boarding Days Sales Difference Less: Variable Expenses Less: Fixed Expenses Total Fixed Expenses 180,000 184,000 4,000 F Net Income $21,610 $170,780 $149,170 U Copyright © 2017 by University of Phoenix. All rights reserved. 1 ...
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Tutor Answer

School: University of Virginia






Green Pastures

According to the static budget
1. Primary causes of loss in net income
The main factors which resulted to the loss in net income are decline in the
boarding number days and the reduction of the boarding fee. There was a decline in the
number of boarding days by 2,900 which is approximately 13% ((2,900 days/21,900
days) x 100% = 13%). The boarding fees declined from $25 to $20 per day which
amounts to 20% decrease (($5/$25) x 100% = 20%). A combination of this resulted to a
decline in sales revenue of $167,500 which represents 31% decline (($167,500/$547,500)
x 100% = 31%). The boarding fee calculation for the downtown and healthy economies
are as below;

$547,500/21,900 days = $25 each day

$380,000/19,000 days = $20 each day

2. Job of management in controlling expenses
According to me, I think the management did a poor job by opting to control
variable expenses. The variable expenses could also have declined by 13% when the
number of boarding days declined by almost 13% or the v...

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