A retail department store used the following cost-volumerelationship were used i

Question

A retail department store used the following cost-volumerelationship were used in developing a flexible budget for thecompany for the currnet year:
                                                                   yearly fixed expenses      variableexpenses per sales dollar
cost of merchandisesold.............................                                              $0.600
selling and promotionexpense....................     $210,000                            0.082
building occupancyexpense.......................       186,000                             0.022
buyingexpense..........................................        150,000                           0.040
deliveryexpense........................................         111,000                           0.010
credit andcollection.................................            72,000                           0.002
administrativeexpense..................................      531,000                          0.003
   totals......................................................      $1,260,000                       $0.759
management expected to attain a sales level of $12 millionduring the current year. At the end of the year, the actualresults achieved by the company were:
net sales..............................................$10,500,00
cost of goodssold...............................    6,180,000
seliing and promoting expenses............   1,020,000
building occupancyexpenses...............       420,000
buyingexpenses.................................       594,000
deliveryexpense.................................        183,000
credit and collectionexpense...............          90,000
administrativeexpense........................       564,000 ** write a statement evaluating the company's performance inrelation to the plan reflected in the flexible budget A retail department store used the following cost-volumerelationship were used in developing a flexible budget for thecompany for the currnet year:                                                                    yearly fixed expenses      variableexpenses per sales dollar cost of merchandisesold.............................                                              $0.600 selling and promotionexpense....................     $210,000                            0.082 building occupancyexpense.......................       186,000                             0.022 buyingexpense..........................................        150,000                           0.040 deliveryexpense........................................         111,000                           0.010 credit andcollection.................................            72,000                           0.002 administrativeexpense..................................      531,000                          0.003    totals......................................................      $1,260,000                       $0.759 management expected to attain a sales level of $12 millionduring the current year. At the end of the year, the actualresults achieved by the company were: net sales..............................................$10,500,00 cost of goodssold...............................    6,180,000 seliing and promoting expenses............   1,020,000 building occupancyexpenses...............       420,000 buyingexpenses.................................       594,000 deliveryexpense.................................        183,000 credit and collectionexpense...............          90,000 administrativeexpense........................       564,000 ** write a statement evaluating the company's performance inrelation to the plan reflected in the flexible budget

Explanation / Answer

It is apparent from the flexible budget (revised to matchactual sales of $10.5 millions) that the company has a net savingsin Cost of goods sold to the extent of $1.2 millions ($6.30millions - $6.18 millions) i.e. 19%. Besides, the selling and promotion cost has also decreased by$51,000(4.76%) and delivery expense has also decreased by $33,000(15.28%). The only considerable effect of increased cost of buying by$24,000(4.21%) needs attention and management should discoverthe reason of increase.

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