Problem -
Towers Corporation is getting ready for their annual budgeting process. They are budgeting to sell 10,000 shelving units at $8 each. They make their product at a cost of $3.50/unit. Management receives a salary of $7,500 and a bonus of 10% of revenues if the company does well. Sales personnel receive a salary of $2,000 and a commission of $1.25 for each unit sold. Rent is $1,000 per month; utilities $80/month; and other expenses are budgeted at $1,500/year.
Actual results are: Cost of Goods Sold ($35,000), Management ($7,500), Sales personnel ($9,500), Rent ($16,000), Utilities ($850), and Other Expenses ($1,500).
a) Prepare a static budget.
b) Prepare a flexible budget.
c) Comment on the performance of the division based upon the differences in the two budgeting methods.