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Category > Accounting Posted 09 Jun 2017 My Price 8.00

Green Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass

BYP10-2 Green Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass, special- izing in the boarding of broodmares and their foals. A recent economic downturn in the thorough- bred 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 2014 to entertain clients, advertise more extensively, and absorb expenses formerly paid by clients such as veterinary and blacksmith fees.

The budget report for 2014 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: 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.1

 

Green Pastures

Static Budget Income Statement For the Year Ended December 31, 2014

 

 

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

 

 

 

1Data for this case are based on Hans Sprohge and John Talbott, “New Applications for Variance Analysis,”

Journal of Accountancy (AICPA, New York), April 1989, pp. 137–141.

 

 

 

 

 

Actual

 

Master Budget

 

Difference

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

 

                                                                                                 

 

 

Instructions

With the class divided into groups, answer the following.

(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 expenses?

(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 Green Pastures?

 

Answers

Alpha Geek
(8)
Status NEW Posted 09 Jun 2017 07:06 AM My Price 8.00

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Attachments

file 1496992699-1356700_1_636325237314280404_Green-Pastures-Solution.xlsx preview (282 words )
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