Question

Snells is a retail department store. The following cost-volume relationships were used in developing a flexible budget for the company for the current year:________.

Management expected to attain a sales level of $12 million during the current year. At the end of the year, the actual results achieved by the company were as follows:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $10,500,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 6,180,000
Selling and promotion expense . . . . . . . . . . . . . . 1,020,000
Building occupancy expense . . . . . . . . . . . . . . . . 420,000
Buying expense . . . . . . . . . . . . . . . . . . . . . . . . . . 594,000
Delivery expense . . . . . . . . . . . . . . . . . . . . . . . . . 183,000
Credit and collection expense . . . . . . . . . . . . . . . 90,000
Administrative expense . . . . . . . . . . . . . . . . . . . . 564,000
Instructions:
a. Prepare a schedule comparing the actual results with flexible budget amounts developed for the actual sales volume of $10,500,000. Organize your schedule as a partial multiple-step income statement, ending with operating income. Include separate columns for
(1) Flexible budget amounts,
(2) Actual amounts, and
(3) Any amount over (under) budget. Use the cost-volume relationships given in the problem to compute the flexible budget amounts.
b. Write a statement evaluating the company’s performance in relation to the plan reflected in the flexiblebudget.

Answer 1

To prepare a schedule comparing the actual results with the flexible budget amounts, calculate the flexible budget amounts using the cost-volume relationships given in the problem. Then compare the flexible budget amounts to the actual amounts to determine any variances. To evaluate the company's performance, analyze the variances between the actual and flexible budget amounts.

Step-by-step explanation:

To prepare a schedule comparing the actual results with the flexible budget amounts, we need to calculate the flexible budget amounts using the cost-volume relationships given in the problem.

The cost-volume relationships provide us with a formula or equation that relates the cost to the level of sales.

Once we have the flexible budget amounts, we can compare them to the actual amounts and determine any variances.

For example, let's calculate the cost of goods sold using the cost-volume relationship mentioned in the problem.

Given the sales volume of $10,500,000, the cost of goods sold is calculated as follows:

Cost of Goods Sold = 6,180,000 + (0.45 * 10,500,000)

= 6,180,000 + 4,725,000

= 10,905,000

We can use similar calculations to determine the flexible budget amounts for the other expenses.

Once we have the flexible budget amounts, we can compare them to the actual amounts and calculate the amount over or under budget.

To evaluate the company's performance in relation to the plan reflected in the flexible budget, we need to analyze the variances between the actual and flexible budget amounts.

If the actual amount is higher than the flexible budget amount, it indicates an unfavorable variance.

If the actual amount is lower than the flexible budget amount, it indicates a favorable variance.

Analyzing these variances will help us determine how well the company performed compared to the plan.