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: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC), Green Pastures Static Budget Income Statement.
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-wordexamination 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?
WEEK SIX BUDGET ANNALYS FOR FIX AND STATIC INCOME STATEMENT
ACT
MARES
52
BUD
DIFFERENCE
52
8
NUMBER OF DAYS
19,000
19,000
2,900
SALES
475,000
380,000
95,000 U
FEED(5)
95,000
104,390
9,390 u
VETERINARY FEES(3)
57,000
58,838
1,838 u
4750
4,984
234 u
SUPPLIES(.55)
10,450
10,178
272 f
TOTAL VARIBLES
167200
178,390
11,190 u
CONTRIBUTION
307,800
201,610
106,190
FIXED EXPENSES
T
VARIABLE EXPENSES
BLACKSMITH (.25)
DEPRECIATION
40,000
40,000
0
INSURANCE
11,000
11,000
0
UTILITIES
12,000
14,000
2,000 F
REPAIRS/MAINTENANCES
11,000
10,000
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
180,000
184,000
4,000 F
21,610
170,780
149,170 U
TOTAL
NET INCOME
E STATEMENT
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