Purpose of Assignment

This comprehensive case requires students to evaluate a static budget and prepare flexible budgets to meet managerial needs. Students are required to calculate and analyze variances and discuss how variances are critical to managerial decision making.

Scenario

Fresh Meadows is a 400-acre farm on the outskirts of the St Louis, specializing in the boarding of broodmares and their foals. The recent news articles have caused downturn in the thoroughbred industry has led to a decline in breeding activities, and it has made the boarding business extremely competitive.

To meet the competition, Fresh Meadows planned in 2019 to entertain clients, advertise more extensively.

The static budget report (prepared at the start of 2019) for 2019 is presented as an attachment.

As shown, the static income statement budget for the year is based on an expected 19,710 boarding days at $28 per mare. The variable expenses per mare per day were budgeted: feed $5.00, veterinary fees $3.00, blacksmith fees $0.25, and supplies $0.55.All other budgeted expenses were either semi fixed or fixed.

During the year, management decided not to replace two worker who retired in March, but it did issue a new advertising brochure.

Required

A memo that address the following:

• Make a flexible budget report for the year.
• Based on the static budget given and flexible budget you have created:
• What was the primary cause(s) of the decrease in net income?
• Did management make a good, average, or poor job of controlling variable expenses?
• Were management's decisions to lower prices, advertise & entertain, and leave positions vacant good ideas?
• Show all of your calculations.