Question

Question For Managerial accounting class: All the information is below

1. A is a retail company that sells shoes. Data concerning the company’s monthly revenues and costs appear below (Q  refers to the number of pairs of shoes sold):

	Formula
Revenue	$70 Q
Expenses:
Cost of merchandises	$30 Q
Wages and salaries	$130,000
Utilities	$12,000 + $2Q
Miscellaneous	$5000 + $3 Q

1. Prepare the company’s planning budget assuming that 30,000 pairs of shoes are expected to be sold. (1pt)

2. Assume that 25,000 pairs of shoes were actually sold. Prepare a flexible budget for this level of activity. (1pt)  

3. The actual results appear below. Prepare a performance report for the company.(1pt)

Revenue	$1,800,000
Purchases	$760,000
Wages and salaries	$135,000
Utilities	$65,000
Miscellaneous	$87,000

Answer 1

Ans. 1	Planning Budget
	Pairs of shoes	30000
	Revenue	$2,100,000
	Expenses:
	Cost of merchandise	$900,000
	Wages and salaries	$130,000
	Utilities	$72,000
	Miscellaneous	$95,000
	Total expenses	$1,197,000
	Net operating income	$903,000
Ans. 2	Flexible Budget
	Pairs of shoes	25000
	Revenue	$1,750,000
	Expenses:
	Cost of merchandise	$750,000
	Wages and salaries	$130,000
	Utilities	$62,000
	Miscellaneous	$80,000
	Total expenses	$1,022,000
	Net operating income	$728,000
Ans. 3	Flexible Budget Performance Report
		Actual Results	Spending variance	Flexible Budget	Activity variance	Planning Budget
	Pairs of shoes	25000			25000			30000
	Revenue	$1,800,000	$50,000	F	$1,750,000	$350,000	U	$2,100,000
	Expenses:
	Cost of merchandise	$760,000	$10,000	U	$750,000	$150,000	F	$900,000
	Wages and salaries	$135,000	$5,000	U	$130,000	$0	none	$130,000
	Utilities	$65,000	$3,000	U	$62,000	$10,000	F	$72,000
	Miscellaneous	$87,000	$7,000	U	$80,000	$15,000	F	$95,000
	Total expenses	$1,047,000	$25,000	U	$1,022,000	$175,000	F	$1,197,000
	Net operating income	$753,000	$25,000	F	$728,000	$175,000	U	$903,000
	*WORKING   NOTES :
	*Calculation of Flexible & Planning budget:
		Flexible Budget	Planning Budget
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