. Based on the static budget report: 1. What was the primary cause(s) of the loss in net income? 2. Did management do a good, average, or poor job of controlling expense? 3. Were management’s decisions to stay competitive sound? b. Prepare a flexible budget report for the year. c. Based on the flexible budget report, answer the three questions in part (a) above. d. What course of action do you recommend for the management of Alps Pastures
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
a. Based on the static budget report:
1. What was the primary cause(s) of the loss in net income?
2. Did management do a good, average, or poor job of controlling expense?
3. Were management’s decisions to stay competitive sound?
b. Prepare a flexible budget report for the year.
c. Based on the flexible budget report, answer the three questions in part (a) above.
d. What course of action do you recommend for the management of Alps Pastures
![Flexible Budget and Variance Analysis
Problem
Alps Pastures is a 400-acre farm on the outskirts of New Zealand, 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, Alps Pastures planned in 2014 to entertain clients, advertise more extensively, and
absorb expenses formerly paid by clients such as veterinary and blacksmith fees.
The budget report for 2019 is presented below. 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: fee $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.
Alps Pastures
Static Budget Income Statement
For the year ended December 31, 2019
Actual
Master Budget
Difference
Number of mares
52
60
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
Veterinary fees
58,838
65,700
6,862
F
Blacksmith fees
4,984
5,475
491
F
Supplies
Total Variable expenses
Contribution margin
10,178
178,390
201,610
12,045
1,867
14,330
153,170
192,720
F
354,780
Less: Fixed expenses
Depreciation
Insurance
40,000
11,000
40,000
11,000
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
Entertainment
7,000
180,000
5,000
2,000
Total Fixed Expenses
184,000
4,000
F
Net Income
$21,610
$170,780
$149,170 U
Required:
a. Based on the static budget report:
1. What was the primary cause(s) of the loss in net income?
2. Did management do a good, average, or poor job of controlling expense?
3. Were management's decisions to stay competitive sound?
b. Prepare a flexible budget report for the year.
c. Based on the flexible budget report, answer the three questions in part (a) above.
d. What course of action do you recommend for the management of Alps Pastures?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F37813d3d-b98a-4267-bdcb-732996f0a258%2Fbda904c3-3f07-468c-9baf-03d16b466796%2Fw7ou1x_processed.png&w=3840&q=75)
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