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
Budget Report
For the Month Ended October 31, 2017
Budget Actual Difference
Favorable
Unfavorable
Neither Favorable nor Unfavorable
Sales in units 7,800 10,000 2,200 Favorable
Variable expenses
Sales commissions $1,872 $2,400 $528 Unfavorable
Advertising expenses 936 900 36 Favorable
Travel expense 3,120 4,000 880 Unfavorable
Free samples given out 1,794 1,300 494 Favorable
Total variable 7,722 8,600 878 Unfavorable
Fixed expenses
Rent 1,700 1,700 -0- Neither Favorable nor Unfavorable
Sales salaries 1,100 1,100 -0- Neither Favorable nor Unfavorable
Office salaries 800 800 -0- Neither Favorable nor Unfavorable
Depreciation-autos (sales staff) 400 400 -0- Neither Favorable nor Unfavorable
Total Fixed 4,000 4,000 -0- Neither Favorable nor Unfavorable
Total expenses $11,722 $12,600 $876 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. (List variable costs before fixed costs. Do not leave any answer field blank. Enter 0 for amounts.)

SORIA COMPANY
Selling Expense
Flexible Budget Report
Clothing Department
For the Month Ended October 31, 2017
Difference
Favorable /Unfavorable /Neither Favorable nor Unfavorable
Budget Actual

Answer 1

The flexible budget report shows that variable costs were $1,300 below budget.

Step-by-step explanation:

SORIA COMPANY

Selling Expense Flexible Budget Report

Clothing Department

For the Month Ended October 31, 2017

Budget Actual Difference

Fav /Unfav /Neither

Fav nor Unfav

Sales in units 10,000 10,000 -0- Neither Fav nor Unfav

Variable Expenses

Sales in Commission

(0.24) 2400 2400 -0- Neither Fav nor Unfav

Advertising Expenses

936/7800* 10,000 1200 900 300 Fav

Travel Expense

3120/7800 *10,000 4000 4000 -0- Neither Fav nor Unfav

Free Samples Given Out

1794/7800 *10,000 2300 1300 1000 Fav

Total Variable

Expenses (0.99) 9,900 8,600 1300 Fav

Fixed Expenses

Rent 1700 1,700 -0- Neither Fav nor Unfav

Sales salaries 1,100 1,100 -0- Neither Fav nor Unfav

Office salaries 800 800 -0- Neither Fav nor Unfav

Depreciation-autos (sales staff)

400 400 -0- Neither Fav nor Unfav

Total Fixed 4,000 4,000 -0- Neither Fav nor Unfav

Total Expenses 13900 12600 1300 Favorable

From the above flexible budget report, variable costs were $1,300 below budget.

Answer 2

SORIA COMPANY

Selling Expense

Flexible Budget Report

Clothing Department

For the Month Ended October 31, 2017

Difference

Budget / Actual

Variable Expenses

Sales Commissions $2,340 / $2,400 Unfavorable

Advertising Expenses $1,170 / $900 Favorable

Travel Expense $3,900 / $4,000 Unfavorable

Free Samples Given Out $1,950 / $1,300 Favorable

Fixed Expenses

Rent $1,700 / $1,700 Neither Favorable nor Unfavorable

Sales Salaries $1,100 / $1,100 Neither Favorable nor Unfavorable

Office Salaries $800 / $800 Neither Favorable nor Unfavorable

Depreciation-Autos (Sales Staff) $400 / $400 Neither Favorable nor Unfavorable

Step-by-step explanation:

The flexible budget report provides a comparison between the flexible budget amounts and the actual expenses incurred in the Clothing Department of Soria Company for the month of October 2017. The flexible budget is adjusted based on the actual sales volume of 10,000 units, as opposed to the static budget, which was based on 7,800 units. This report aims to analyze the variances in selling expenses by reevaluating the budgeted figures to reflect the actual sales levels.

In the variable expenses section, there are discrepancies between the budgeted and actual amounts. Sales commissions, advertising expenses, travel expenses, and free samples given out display variances, indicating either favorable or unfavorable outcomes. Notably, sales commissions exceeded the budget by $528, while advertising expenses were $36 lower than budgeted. Travel expenses were $880 over the budget, whereas free samples given out were $494 lower than expected.

Fixed expenses remained consistent with the budgeted amounts, showcasing neither favorable nor unfavorable variances. Rent, sales salaries, office salaries, and depreciation for autos remained unchanged from the flexible budget to the actual expenses. This flexible budget report provides a clearer picture of the performance, accounting for actual sales levels, and serves as a more accurate tool for assessing the department's performance.