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

Answer:

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

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

Answer:

Soria Company

Clothing Department

Selling Expense Flexible Budget Report for the month ended October 31, 2017: (Joe Batista)

                                    Budget     Actual      Variance      Comment

Sales in units              10,000      10,000        0                  Neither

Flexed Variable Expenses:

Sales Commission     $2,400     $2,400       0                  Neither

Advertising Exp.         $1,200        $900        $300           Favorable

Travel Expense          $4,000    $4,000        0                  Neither

Free Samples            $2,300     $1,300        $1,000          Favorable

Total Variable            $9,900    $8,600        $1,300          Favorable

Fixed Expenses:

Rent                           $1,700      $1,700         0                   Neither

Sales Salaries            $1,100      $1,100          0                   Neither

Office Salaries            $800        $800          0                  Neither

Depreciation               $400        $400          0                  Neither

Total Fixed               $4,000     $4,000          0                  Neither

Total  Expenses     $13,900    $12,600         $1,300          Favorable

Explanation:

a) Budgeted Variable Costs were flexed as follows:

i) Sales Commission = $1,872/7,800 x 10,000 = $2,400

ii) Advertising Expenses = $936/7,800 x 10,000 = $1,200

iii) Travel Expense = $3,120/7,800 x 10,000 = $4,000

iv) Free Samples = $1,794/7,800 x 10,000 = $2,300

b) The fixed costs could not be flexed as they remain invariable no matter the activity level.

c) Flexible budget is a budget that adjusts or flexes with changes in volume or activity.  It is a more accurate way of assessing performance because it is based on actual volume or activity level unlike a static budget, which remains unchanged.