Question: This chapter focused on flexible budgets and variance analysis While

This chapter focused on flexible budgets and variance analysis. While the information used to determine both of these is generally for internal purposes only and not available to an outsider, it is possible to look at what information a firm reports and, based on that information, to make some judgments about what occurred.
1. Look at the Hershey Company home page at . Who is Hershey’s home page directed to? What are the most prominent items on the page? Where do you find financial information?
2. Click on “Corporate Information,” then on “Investors,” and then “Financial Reports.” Examine Hershey’s income statement from its most recent 10-K in “SEC Filings.” Prepare a static budget for income before income taxes based on the assumption that net sales and variable costs are expected to increase by 4% for the next fiscal year. Assume that cost of sales is the only variable cost and that all other costs are fixed costs. (The assumption that all other costs—including items such as realignment and impairment charges, gains on sales of businesses, and other such one-time charges—are fixed costs, is a simplification. A more realistic assumption might be that these are nonrecurring costs.)
3. Now, suppose that selling prices were exactly as budgeted in question 2, but sales and variable costs actually increased by 6% and fixed costs increased by 1%. Determine the static-budget variance, the sales-activity variance, and the flexible-budget variance for operating income.

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