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.
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 .25, and supplies .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®.
Explanation & Answer
Attached.
Green Pastures
Static budget income statement
For the year ended 31st December 2017
Actual Master budget Difference
Number of mares
Number of boarding days
Sales
Less:
Variable expense
Feed
Veterinary fees
Blacksmith fees
Supplies
Total variable Expenses
Contribution margin
Less:
Fixed expense
Depreciation
Insurance
Utilities
Repairs and maintainance
Labor
Adevertisement
Enterntainment
Total fixed expense
Net income
52
19,000
$ 380,000 $
60
21,900
547,500
104,390
58,838
4,984
10,178
178390
201,610
109,500
65,700
5,475
12,045
192720
354,780
40,000
11,000
12,000
10,000
88,000
12,000
7,000
180,000
$ 21,160 $
40,000
11,000
14,000
11,000
95,000
8,000
5,000
184,000
170,780 $
8
2,900
167,500
0
5,110
6,862
491
1,867
14,330
153,170
0
0
2,000
1,000
7,000
4,000
2,000
4,000
149,170
U
U
U
F
F
F
F
F
F
F
F
F
U
U
F
U
Computation of variable costs
Original budget Variable cost per unit
Original budget/21900
Production
Total
$
21,900 days
109,500
65,700
5,475
12,045
192,720.00 $
Flexible budget
Average cost*19,000
$5
$3
$0.25
$0.55
8.80 $
19,000 days
95,000
57,000
4,750
10,450
167,200.00
Green pastures
Flexible budget income statement
For the year ended 31st December 2017
Actual Flexible budget
Number of mares
Number of boarding days
Sales
Less:
Variable expense
Feed
Veterinary fees
Blacksmith fees
Supplies
Total variable Expenses
Less:
Total fixed expense
Net income
Fixed expense
Depreciation
Insurance
Utilities
Repairs and maintainance
Labor
Adevertisement
Enterntainment
52
19,000
$ 380,000 $
60
19,000
547,500
104,390
58,838
4,984
10,178
178,390
95,000
57,000
4,750
10,450
167,200
40,000
11,000
12,000
10,000
88,000
12...
Review
Review
