Question

I need assistance in preparing a flexible budget based on the following scenario and information.

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.

Green Pastures

Static Budget Income Statement

For the Year Ended December 31, 2017

Actual               Master Budget              Difference

Number of Mares                                                         52                                 60                      8 U

Number of Boarding Days                                      19,000                         21,900                 2,900 U

Sales                                                                $380,000                       $547,500           $167,500 U

Less: Variable Expenses

            Feed                                                     104,390                         109,500                 5,110 F

            Veterinary Fees                                       58,838                            65,700                 6,862 F

            Blacksmith Fees                                    4,984                                 5,475                  491 F

            Supplies                                               10,178                             12,045                 1,867 F

Total Variable Expenses                                    178,390                         192,720               14,330 F

Contribution Margin                                           201,610                         354,780            153,170 U

Less: Fixed Expenses

            Depreciation                                         40,000                             40,000            -0-

            Insurance                                              11,000                             11,000            -0-

            Utilities                                                 12,000                             14,000            2,000 F

            Repairs and Maintenance                      10,000                             11,000            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

Total Fixed Expenses                                        180,000                         184,000            4,000 F

Net Income                                                       $21,610                         $170,780           $149,170 U

Answer 1