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T&P Fashion ShopsT&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store.
T&P Fashion Shops
T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store. T&P headquarters accumulates and analyzes the information for each store and in the aggregate.
Below is the forecast (budgeted income statement) for the Houston store showing the breakdown of fixed and variable expenses in columns two through four. The last column shows the actual results.
T&P Fashions - Houston Store
Breakdown of Expenses (Forecast)
ForecastFixedVariableActual
Revenues$1,400,000$1,260,000
Cost of Sales790,000790,000760,000
Gross Profit$610,000$500,000
Management182,000154,70027,300182,000
Shop assistants258,000154,800103,200262,000
Rent23,20018,5604,64022,000
Utilities34,80034,80031,000
Misc. expenses24,50012,25012,25029,000
Total expenses$522,500$526,000
Net income$87,500$(26,000)
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Additional Information
- Variable expenses are based on revenues and we assume that the percentage remains constant for flexible budgeting purposes.
- Fixed costs are all within the relevant range.
- Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses.
Case Assignment
Required:
Computations (use Excel)
- Prepare a flexible budget and show variances for the year that passed. Indicate whether the flexible budget variances are favorable or unfavorable.
- Headquarters are contemplating charging each store a 5% marketing expense based on sales. How will that affect the operating profit of the store and the money available for managerial bonuses based on actual results for the past year? Summarize the information in a table.
Memo (use Word)
Write a 4- or 5-paragraph memo to the division manager explaining the flexible budget variances; how to interpret the information and what action, if any to take. Comment on the 5% marketing proposal too. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.
Short Essay (use Word)
Start with an introduction and end with a summary or conclusion. Use headings.
- Discuss how to interpret static and flexible budget variances.
- What are the benefits of variance analysis? How can such analysis be detrimental rather than beneficial to the organization?
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*** budgeted and thus have ******** ** adverse ***** variance In regard ** *** **** of ***** *** ********** ******** ** *** be ******** **** *** ******** has ******** **** ******** than *** ******* and ********* the **** ** ***** ******** has ******** ** *********** ***** ********** ******* *** shop ********* ******** ******** are more **** ******** *** **** resulted in ** *********** ******** **** *** ******* ******** have been incurred less **** budgeted figures; ***** ********** ********* **** **** ******** *********** ************* ******** incurred *** **** **** budgeted and resulted ** ** *********** ******** Generally ******* ********* ******** ** unfavorable Actual ******** ** ******* was $18239 **** **** *** ******* ******** ************ ** ******** ** MARKETING ******* ***** ** SALES ON ********* ****** ** *** ************* of *** ** ********* ******* based ** ***** will ******** both ****** *** ******** budget ******** of *** ****** *** this will ****** *** ********* income ** *** ****** ********* **** will ****** *** money ********* for managerial ******* based ** ****** results *** *** past yearSUMMARY AND RECOMMENDATIONHaving **** *** ******** budget *** ********** after ********* ** *** ********** ***** * ****** **** at *** ******** ********** reveals **** ***** deviations **** **** ****** overhead cost increased ******* ** unfavorable *************** ******** cost ******** ** ****** ******* ***** *** **** ** **** most ** the increase in ***** **** ***** customers ** ****** ***** percentage ********* ** relation ** ******** ******** bringing ***** ** ********** ********** flexible-budget ******* ******** ** *** ****** ** $31489 ********* *** ********** ****** ********* *** ***** *** ** increase ** overhead **** **** *** ******* * ********* ** what ****** *** ****** ******* ****** **** budgeted amounts *** help management of T& ******* shop ** efficiently ****** its costs *** ******* ********* in the future *********** Headquarters ****** ******** ** *** *** ********* *** ********* ******** expense as ******** ** *** stores ** *** **** ****** ***** ********* profit *********************************** ****** ********* *** ****** *** *********** between line ***** ** ****** ********* statements **** those on ****** ******* ****** budget *** ******* ******** ** *** *** of *** period ***** *** actual ******** level ** *** available ****** *** ********** ******* ***** ** *** hand a static budget ** ***** *** *** ****** ****** covered ** *** budget with no changes ***** on ****** ******** **** even ** ****** sales ****** ******* ************* **** *** expectations ********** ** *** static ****** the amounts ****** ** *** ****** *** *** ******* * ****** ****** ***** ** most ****** **** * ******* *** ****** *********** ***** *** expenses **** *** not ******** ** ****** **** ******* the budgeting period ** **** ***** ************ ***** ********* results ***** ****** ************* a ****** budget can ** * ********* ***** ****** results *** ** ******** ** * ****** **** ** no ****** ******** ****** 2017)INTERPRETATION OF ****** *** ******** ********* results obtained from ********* *** ******** budget to *** actual activity ***** ***** ******** the ****** ** ******* ** ******** ****** ** ******** *** costs ******* ******** ********** ** **** ********* and useful *********** ** ***** *** **** ****** *** ******** ****** *** income ***** **** ****** ******* ****** the ****** ** flexible ****** ******* *** ******** ** favourable and **** versa *** **** ***** an ****** of ****** ** ******** ****** ******* **** ****** ****** means favourable variance *** **** ***** A ********** ******** ****** **** *** ****** ***** are ***** **** *** ******** ***** at the ************** ***** ** activity While unfavorable Variances ****** **** the ****** costs *** more **** *** standard ***** at the predetermined ***** of activity **** ********* ****** ** ************ **************** ** ******** ANALYSISA variance ** *** ********* ** ****** **** ******** ** ** *** ********** ******* ****** and standard *** main *** ** ******** ******** ** to ******* cost ******* *** cost ********* ***** ******** ******* system *** management ** ********* ********* ** applied ******* variance ******** ****** 2017) The ********* *** ******* ** ********** ********** ******** is ** ******** ** efficiency In **** **** *** responsible ******* *** rewarded ***** *********** ******** is * **** ** ************ **** **** ******* *** reasons *** the ********** are investigated and remedial actions *** taking ** ***** a ****** ************ *** ****** ****** ** **** ** the ***** from ***** ****** results *** ******** *** ********* ******** ** ****** * static budget ******** ****** ******* are ******** used ** *** basis for evaluating ***** *********** * common ****** ** ***** * ****** ****** ** *** ***** *** * ******** ******** ** that the ********* *** be ***** substantial ********** *** those budget periods furthest ** *** future ***** ** ** ********* ** **** ******** *********** *** more **** * *** ****** ***** variances are **** ******* if a flexible ****** ** **** instead ***** * ******** ****** ** ******** ** **** ******* of changes ** ****** ***** ****** ****** ***************** *** ************* ** ******** ANALYSISAdvantages of Variance analysis ******* *** ********** ** ***** ********** **** **** *** areas of ************ ** **** remedial ****** *** ** *** ** ***** *** ************ ********** ******* different ********* are ******** by ************ ** ******** analysis ******** analysis ** ****** useful *** fixing ************** of ** ********** ** ********** ** ******* for **** ******** separately ******** ******** ********** *** *********** ************ *** *** ****** ** ************ ** ** useful *** controlling *** reduction ** **** ************** ** ******** into ************ *** ************** variances ***** ** ******** **** controllable ********* *** taken **** ************* *** ******* action ** ***** management ** carry *** proper profit ******** **** It creates **** ************* ** *** ***** ** every employee ** * ******** ************ (Adrian 2018) The ********* ** ******** ******** **** as ******** budget ******** ** **** ** ***** **** time ** ******* delays *** issuance of ********* ********** does *** ******* ******* ********* *** *** *** be ********** ***** certain ****** models ****** ***** Additionally * ****** budget is *** ********* *** ********** the *********** ** **** ******* ********* **** ******** *** **** ****** **** ******** *** ******** of **** ******* **** ** ***** more **** *** amounts ********* ** the baseline ****** ****** *** **** **** to **** ************ ********* ****** they *** ****** ***** **** ** ****** ** keep ** **** ******** demand ****** ************************ *** variance ******** ** ** ********* ********** tool **** ** ********** ** decision making * ****** ceases ** ** * ******* document *** ******* ****** more **** * ************ ***** *** *** ******* of ******** owners ****** prospective ********* without ******** ******** ******************************************************************************** * budget ** ***** **** ** a ******* outlining the organization’s *********** objectives *** * ***** period of **** and variance ******** will enable them to make *** *********** *** ******** decisions **** ***** **** *** ******* **** ********** in the ****** Finally Variance ******** ***** accounting personnel and ******** ** indication ** where they *** **** *** ******** material issues References· ************** Financial Analysis3 February **** ********* **** 7 *** 2018 ************************************************************************************************** BraggS:(2017) ********* September 03 **** ********* on * *** 2018 **** ************* *************************** *********************************************************************************
