Description
The Purpose of the Case
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)
- Tutorial help on Excel® and Word functions can be found on the Microsoft Office website. There are also additional tutorials via the web offering support for Office products.
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.
Must Be Original Work
Please Use this resources:
Kimmel, P. D., Weygandt, J. J., Kieso, D. E. Accounting: Tools for Business Decision Making.
Explanation & Answer
Thank you so much
Running head: MANAGERIAL ANALYSIS
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Accounting: Managerial Analysis:
Name:
Institution Affiliation:
Date:
MANAGERIAL ANALYSIS
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The primary cause of the losses in net income.
The decrease in the number of boarding days, as well as the decrease in the boarding fees,
were the primary causes of losses the farm experienced. The actual number of boarding days
were less than the budgeted number of days by a margin of 13%. i.e., ((21900-19000) days /
21900 days). Additionally, the actual boarding fees were also less than the budgeted boarding
fees by a margin of 20 percent. This is so since the expected boarding fees per mare was $25, but
the actual boarding fees per mare was equal to $20, i.e., ($380000/19000 days = $20 per day).
The variation of the actual boarding days and boarding fees from the budgeted figures resulted in
the actual sales being less than the expected sales by a margin of 31% ( ($5475000 - $380000)/
$5475000). Therefore, even though the expected variable expenses were less than the actual
variable expenses, the farm was bound to incur losses in net income because the variation in
sales was much bigger than the variation is total variable expenses, which was only $14 330.
Did management do a good, average, or poor job of controlling expenses...
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