Prepare a flexible budget and show variances for the year that passed. Indicate
ID: 2341779 • Letter: P
Question
Prepare a flexible budget and show variances for the year that passed. Indicate whether the flexible budget variances are favorable or unfavorable.
Headquarters are contemplating charging each store a 5% marketing expense based on sales. How will that affect the operating profit of the store and the money available for managerial bonuses based on actual results for the past year? Summarize the information in a table.
(INFORMATION PROVIDED BELOW)
T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store. T&P headquarters accumulates and analyzes the information for each store and in the aggregate.
Below is the forecast (budgeted income statement) for the Houston store showing the breakdown of fixed and variable expenses in columns two through four. The last column shows the actual results.
Additional Information
Variable expenses are based on revenues and we assume that the percentage remains constant for flexible budgeting purposes.
Fixed costs are all within the relevant range.
Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses.
T&P Fashions - Houston Store Breakdown of Expenses (Forecast) Forecast Fixed Variable Actual Revenues $1,400,000 $1,260,000 Cost of Sales 790,000 790,000 760,000 Gross Profit $610,000 $500,000 Management 182,000 154,700 27,300 182,000 Shop assistants 258,000 154,800 103,200 262,000 Rent 23,200 18,560 4,640 22,000 Utilities 34,800 34,800 31,000 Misc. expenses 24,500 12,250 12,250 29,000 Total expenses $522,500 $526,000 Net income $87,500 $(26,000) ========= =========Explanation / Answer
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Forecast Forecast Fixed Variable Actual Flexible Working Revenues $ 1,400,000 $ 1,260,000 $ 1,260,000 Cost of Sales $ 790,000 $ 790,000 $ 760,000 $ 711,000 790000/1400000*1260000 Gross Profit $ 610,000 $ 500,000 $ 549,000 1260000-711000 Management $ 182,000 $ 154,700 $ 27,300 $ 182,000 $ 179,270 (27300/1400000*1260000)+154700 Shop assistants $ 258,000 $ 154,800 $ 103,200 $ 262,000 $ 247,680 (103200/1400000*1260000)+154800 Rent $ 23,200 $ 18,560 $ 4,640 $ 22,000 $ 22,736 (4640/1400000*1260000)+18560 Utilities $ 34,800 $ 34,800 $ 31,000 $ 34,800 Misc. expenses $ 24,500 $ 12,250 $ 12,250 $ 29,000 $ 23,275 (12250/1400000*1260000)+12250 Total expenses $ 522,500 $ 526,000 $ 507,761 Net income $ 87,500 $ -26,000 $ 41,239 Forecast Actual Revenues $ 1,260,000 Cost of Sales $ 760,000 Gross Profit $ 500,000 Management $ 182,000 Shop assistants $ 262,000 Rent $ 22,000 Utilities $ 31,000 Misc. expenses $ 29,000 Marketing Expense $ 63,000 Total expenses $ 589,000 Net income $ -89,000 Marketing Expense will increase loss to $89000.