Blue Pastures, Inc. (Home of the Kentucky Breeds) [Flexible Budgeting] The budge
ID: 2489179 • Letter: B
Question
Blue Pastures, Inc. (Home of the Kentucky Breeds) [Flexible Budgeting]
The budget report for 2015 is presented above. 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 at: Feed $5.00, Veterinary fees $3.00, Blacksmith fees $0.30, and Supplies $0.40. All other budgeted expenses were fixed.
During the year, management decided not to replace a worker who quit in March, but the firm issued a new advertising brochure and did more entertaining of clients.
Required:
a) Charley Horse, owner of Blue Pastures, has hired you as his manager. He is terribly upset by the farm's decreased profitability and the unfavorable variances he sees when he compares the master budget to actual revenues and costs. What does you think causes the net loss?
BLUE PASTURES (KENTUCKY DERBY BREEDS) Static Budget Income Statement For the Year Ended December 31, 2015 Actual Master Budget (Static) Difference Flexible Budget Difference Number of Mares 52 60 8 U 52 8 U Number of Boarding Days 18,980 21,900 2,920 U 18,980 2920 U Sales 379,600 547,500 167,900 U 474,500 94900 U Less: Variable Expenses Feed 104,390 109,500 5,110 F 94,900 9490 U Veterinary Fees 58,838 65,700 6,862 F 56,940 1898 U Blacksmith Fees 6,074 6,570 496 F 5,694 380 U Supplies 7,402 8,760 1,358 F 7,592 190 F Total Variable Expenses 176,704 190,530 13,826 F 165,126 11578 U Contribution Margin 202,896 356,970 154,074 U 309,374 106478 U Less: Fixed Expenses Depreciation 45,000 45,000 - 45,000 - Insurance 11,000 11,000 - 11,000 - Utilities 12,000 14,000 2,000 F 14,000 2,000 F Repairs/maintenance 10,000 11,000 1,000 F 11,000 1,000 F Labor 88,000 96,000 8,000 F 96,000 8,000 F Advertisement 12,000 8,000 4,000 F 8,000 4,000 F Entertainment 7,000 5,000 2,000 F 5,000 2,000 F Total Fixed Expenses 185,000 190,000 5,000 F 190,000 5,000 F Net Income 17,896 166,970 149,074 F 119,374 (101,478)Explanation / Answer
There are below case for loss 1 Decrease in Boarding days by (21900-18980) 2,920.0 2 Decrease in price per mare by (25-20) 5.0 3 Increase in variable Cost per mare (9.31-8.7) 0.61 Working Decrease in Price (547500/21900-379600/18980) 5 Increase in variable Cost (176704/18980-190530/21900) 0.61