Mark Fletcher, president of SoftGro Inc., was looking forward to seeing the performance reports for November because he knew the company€™s sales for the month had exceeded budget by a considerable margin. SoftGro, a distributor of educational software packages, had been growing steadily for approximately two years. Fletcher€™s biggest challenge at this point was to ensure that the company did not lose control of expenses during this growth period. When Fletcher received the November reports, he was dismayed to see the large unfavorable variance in the company€™s monthly selling expense report that is presented below:

Fletcher called in the company€™s new controller, Susan Porter, to discuss the implications of the variances reported for November and to plan a strategy for improving performance. Porter suggested that the reporting format that the company had been using might not be giving Fletcher a true picture of the company€™s operations and proposed that SoftGro implement flexible budgeting for reporting purposes. Porter offered to redo the monthly selling expense report for November using flexible budgeting so that Fletcher could compare the two reports and see the advantages of flexible budgeting.
After some analysis, Porter derived the following data about the company€™s selling expenses:
a. The total compensation paid to the sales force consists of both a monthly base salary and a commission. The commission varies with sales dollars.
b. Sales office expense is a mixed cost with the variable portion related to the number of orders processed. The fixed portion of office expense is $3,000,000 annually and is incurred uniformly throughout the year.
c. Subsequent to the adoption of the annual budget for the current year, SoftGro decided to open a new sales territory. As a consequence, approval was given to hire six additional salespersons effective November 1. Porter decided that these additional six people should be recognized in her revised report.
d. Per diem reimbursement to the sales force, while a fixed amount per day, is variable with the number of salespersons and the number of days spent traveling. SoftGro€™s original budget was based on an average sales force of 90 persons throughout the year with each salesperson traveling 15 days per month.
e. The company€™s shipping expense is a mixed cost with the variable portion, $3 per unit, dependent on the number of units sold. The fixed portion is incurred uniformly throughout the year.
Using the data above, Porter believed she would be able to redo the November report and present it to Fletcher for his review.

Required:
1. Describe the benefits of flexible budgeting, and explain why Susan Porter would propose that SoftGro use flexible budgeting in this situation.
2. Prepare a revised monthly selling expense report for November that would permit Mark Fletcher to more clearly evaluate SoftGro€™s control over selling expenses. The report should have a line for each selling expense item showing the appropriate budgeted amount, the actual selling expense, and the variance forNovember.

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SoftGro Inc. Monthly Selling Expense Report November Annual Budget Budget Unit sales. Dollar sales Orders processed. Salespersons per month $80,000,000 $11,200,000 $12,400,000 $1,200,000 F Advertising....$19,800,000 Staff salaries.... Sales salaries 1,650,000 1,660,000 10,000 U 0 6 Per diem expense Office expense Shipping expense Total expense.. $38,408,000 3,722,000 3,893,900 171,900 U