Question

As sales manager, Joe Batista was given the following static budget report for selling expenses in the Clothing Department of Soria Company for the month of October. SORIA COMPANY Clothing Department Budget Report For the Month Ended October 31, 2017 Difference Budget Actual Favorable Unfavorable Neither Favorable nor Unfavorable Sales in units 7,500 10,000 2,500 Favorable Variable expenses Sales commissions $1,950 $2,500 $550 Unfavorable Advertising expense 1,050 900 150 Favorable Travel expense 3,000 4,500 1,500 Unfavorable Free samples given out 1,125 1,100 25 Favorable Total variable 7,125 9,000 1,875 Unfavorable Fixed expenses Rent 1,800 1,800 –0– Neither Favorable nor Unfavorable Sales salaries 1,200 1,200 –0– Neither Favorable nor Unfavorable Office salaries 700 700 –0– Neither Favorable nor Unfavorable Depreciation—autos (sales staff) 600 600 –0– Neither Favorable nor Unfavorable Total fixed 4,300 4,300 –0– Neither Favorable nor Unfavorable Total expenses $11,425 $13,300 $1,875 Unfavorable As a result of this budget report, Joe was called into the president’s office and congratulated on his fine sales performance. He was reprimanded, however, for allowing his costs to get out of control. Joe knew something was wrong with the performance report that he had been given. However, he was not sure what to do, and comes to you for advice. Prepare a budget report based on flexible budget data to help Joe

Answer 1

SORIA COMPANY
Selling Expense Flexible Budget Report
Clothing Department
For the Month Ended October 31, 2017
				Difference
	Varable Cost per unit	Budget	Actual	Favorable (F)
				Unfavorable (U)
				Neither favorable
				nor unfavorable (N)
Sales in units		10,000	10,000
Variable expenses
Sales commissions	0.26	2600	$2,500	$100	F
Advertising expense	0.14	1400	$900	$500	F
Travel expense	0.4	4000	$4,500	$500	U
Free samples given out	0.15	1500	$1,100	$400	F
Total variable	0.95	9500	$9,000	$500	F
Fixed expenses
Rent		1,800	1,800	0
Sales salaries		1,200	1,200	0
Office salaries		700	700	0
Depreciation—autos (sales staff)		600	600	0
Total fixed		4,300	4,300	0
Total Cost		13,800	13,300	500	F

Notes :

variable cost for 10,000 units are calculated by following formula

=Variable cost per units x 10,000 units

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2

joe should have not been reprimanded as per the flexible budget report

Explanation

As we can see in the flexible budget report that there is a favorable variance of $ 500(which means actual cost is less than standard cost to be incurred)