Description
Managerial Analysis
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.
The assigment will be graded based upon Content (80%) and Organization and Structure (20%)
Assignment Steps
Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC), Green Pastures Static Budget Income Statement
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.
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 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. Please ensure that you use a business memo format for this assignment.
Resources: You must include 3 external resources to support your assignment.
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Explanation & Answer
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Introduction
Static budget and flexible budget variance report are very important tool in the
managerial decision making process of a company (Garrison, Noreen, & Brewer, 2015). This
paper aims at preparation and review of the Static Budget Variance Report, and flexible budget
variance report of Green Pastures.
Static Budget Variance Report, and Flexible Budget Variance Report of Green Pastures
Analysis of Performance of Green Pastures Based on Static Budget Variance Report
The statistic budget variance report of the Green Pastures shows that the company has
incurred unfavorable net income variance. Whereas the master budget of the net income of the
Green Pastures was $170,780, actual result of the net income was $21,610. Overall unfavorable
variance of the net income figure was $149170. The main cause of the unfavorable variance in
the net income for 2017 is the inability to meet master sales units and per unit sales prices
budget. Whereas the Green Pastures actually planned to make sales of 21,900 boarding days at
$25 per mare, the company actually made sales of 19,000 boarding days at $20 per mare. Green
Pastures has failed to meet its market share goal. Average price obtained from the product was
also lower than the expected. The impact of recent economic downturn and consequential impact
on the performance of the Green Pastures is clearing observed on the total sales volume and
actual per unit price generation performance of the company.
The performance of the management of the Green Pastures in controlling the expen...
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