Reference no: EM131979465
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:
Yearly Variable Expenses per Sales Dollar
Fixed Expenses
Cost of merchandise sold $ 0.600
Selling and promotion expense $ 210,000 0.082
Building occupancy expense 186,000 0.022
Buying expense 150,000 0.041
Delivery expense 111,000 0.008
Credit and collection expense 72,000 0.002
Administrative expense 531,000 0.003
Totals $ 1,260,000 $ 0.758
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 flexible budget.