Description
Purpose of Assignment
This comprehensive case requires students to evaluate a static budget and prepare flexible budgets to meet managerial needs. Students are required to calculate and analyze variances and discuss how variances are critical to managerial decision making.
Resources
Managerial Analysis Grading Guide
Green Pastures Static Budget Income Statement
Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC)
Assignment Steps
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 semifixed 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 700-to 1050-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.
Explanation & Answer
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Running Head: GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Generally Accepted Accounting Principles
Student’s Name:
Course Title:
Date:
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
1
There are two major primary causes of the net income loss. The first one is the boarding
fee decrease, and the second one, the reduction in the number of boarding days. From the case
analysis, the number of boarding days reduces by thirteen percent (13%) which is obtained
through the following formula:
boarding days decrease = 2,900
From master budget, number of boarding days =21900
Thus, 2900/21, 900*100= 13%
As for the boarding fee, there was a decrease of twenty percent (20%). This is obtained by:
There was a decrease to $20 per day from $25 per day. This is a very huge margin.
Thus, ($5/$25)*100= 20%
From the combination of the two, there was a substantial decrease in revenue. The sales
revenue decreased by a hundred and sixty-seven thousand, five hundred US dollars. In
percentage, this is thirty-one percent (31%). We can compare the calculations for the boarding
fee per day during a good ...
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