Compute the flexible budget amounts


Case Scenario: Four Flags 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 Fixed Expenses Variable Expenses per Sales Dollar

Cost of merchandise sold                                          0       $0.600
Selling and promotion of expenses                  $210,000       0.082
Building occupancy expenses                            186,000       0.022
Buying expenses                                              150,000       0.040
Delivery expenses                                            111,000       0.010
Credit and collection expenses                             72,000       0.002
Administrative expenses                                     531,000      0.003
Totals                                                           $1,260,000     $0.759

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 expenses     1,020,000
Building occupancy expenses            420,000
Buying expenses                             594,000
Delivery expenses                           183,000
Credit and collection expenses           90,000
Administrative expenses                  564,000

A) Prepare a schedule comparing the actual results with the 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.

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Accounting Basics: Compute the flexible budget amounts
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