Question

Eight 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:


Management expected to attain a sales level of $20 million during the current year. At the end of the year, the actual results achieved by the company were as follows:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,000,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,160,000
Selling and promotion expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
Building occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000
Buying expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,000
Delivery expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Credit and collection expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000

Instructions
a. Prepare a schedule comparing the actual results with flexible budget amounts developed for the actual sales volume of $18,000,000. 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.
c. Why is a flexible budget useful in evaluating the performance of the Eight Flags store?
d. Do fixed costs and variable costs always change in a flexiblebudget?


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  • CreatedApril 17, 2014
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