Comment on the major flaw in the report above. Prepare a revised report using a flexible budget. Comment on Pringle’s assertion that she is doing a “great job” keeping costs under control.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
The Greatest Friends is a dog rescue group that specializes in finding homes for the Great Dane breed. The company produces the following cost report for June.
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The Greatest Friends |
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Cost Variance Report |
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For the Month Ended June 30 |
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Budget |
Actual |
Variance |
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Number of dogs in care |
10 |
4 |
6 U |
|
Variable costs |
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|
|
|
Grooming |
$2,000 |
$1,300 |
$700 F |
|
Dog food |
10,000 |
6,500 |
3,500 F |
|
Cleaning supplies |
500 |
400 |
100 F |
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Total variable costs |
12,500 |
8,200 |
4,300 F |
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Fixed costs |
|
|
|
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Salaries |
1,500 |
1,600 |
100 U |
|
Property taxes |
400 |
400 |
__-__ |
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Total fixed costs |
1,900 |
2,000 |
100 U |
|
Total costs |
$14,400 |
$10,200 |
$4,200 F |
Valerie Pringle, the manager of the rescue group comments on the report: “I’m certainly proud of this cost report, it shows that I’m not only doing a great job caring for the animals in our care, I’m also keeping costs under control”.
Required:
- Comment on the major flaw in the report above.
- Prepare a revised report using a flexible budget.
- Comment on Pringle’s assertion that she is doing a “great
job” keeping costs under control.
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