The budget report for 2022 follows. As shown, the static

The budget report for 2022 follows. As shown, the static income statement budget for the year is based on an expected 21,900 boarding days at $25 per mare. The variable expenses per mare per day were budgeted: feed $5, veterinary fees $3, blacksmith fees $0.25, and supplies $0.55. All other budgeted expenses were either semifixed or fixed.

During the year, management decided not to replace a worker who quit in March, but it did issue a new advertising brochure and did more entertaining of clients


Green Pastures

Static Budget Income Statement

For the Year Ended 12/31/2022


Actual

Master

Difference

Favorable or Unfavorable

Number of Mares

52

60

8

U

Number of Boarding Days

19000

21900

2900

U

Sales

$ 380,000

$ 547,500

$ 167,500

U

Less: Variable Expenses

Feed

$ 104,390

$ 109,500

$ 5,110

F

Veterinary Fees

$ 58,838

$ 65,700

$ 6,862

F

Blacksmith Fees

$ 4,984

$ 5,475

$ 491

F

Supplies

$ 10,178

$ 12,045

$ 1,867

F

Total Variable Expenses

$ 178,390

$ 192,720

$ 14,330

F

Contribution Margin

$ 201,610

$ 354,780

$ 153,170

U

Less: Fixed Expenses

Depreciation

$ 40,000

$ 40,000

$ -

Insurance

$ 11,000

$ 11,000

$ -

Utilities

$ 12,000

$ 14,000

$ 2,000

F

Repairs and Maintenance

$ 10,000

$ 11,000

$ 1,000

F

Labor

$ 88,000

$ 95,000

$ 7,000

F

Advertisement

$ 12,000

$ 8,000

$ (4,000)

U

Entertainment

$ 7,000

$ 5,000

$ (2,000)

U

Total Fixed Expenses

$ 180,000

$ 184,000

$ 4,000

F

Net Income

$ 21,610

$ 170,780

$ 149,170

U

  1. Based on the static budget report:
  2. What was the primary cause(s) of the decline in net income?
  3. Did management do a good, average, or poor job of controlling expenses?
  4. Were management’s decisions to stay competitive sound?
  5. Prepare a flexible budget report for the year.
  6. Based on the flexible budget report, answer the three questions in part (a) above.
  7. What course of action do you recommend for the management of Green Pastures?