Z-Bar Pastures is a 160-hectare farm on the outskirts of

Z-Bar Pastures is a 160-hectare farm on the outskirts of Swift Current, Saskatchewan, specializing in the boarding of brood mares and their foals. A recent economic 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, Z-Bar Pastures planned in 2012 to entertain clients, advertise more extensively, and absorb expenses formerly paid by clients, such as veterinary and blacksmith fees.
The budget report for 2012 is presented below. 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 as follows: feed $5; veterinary fees $3; blacksmith fees $0.30; and supplies $0.70. All other expenses were either semi-fixed 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 entertained clients more.
Z-Bar Pastures is a 160-hectare farm on the outskirts of
Z-Bar Pastures is a 160-hectare farm on the outskirts of

Instructions
(a) Based on the static budget report, answer the following questions:
1. What was (were) the primary cause(s) of the loss in net income?
2. Did management do a good, average, or poor job of controlling expenses?
3. Were management's decisions to stay competitive sound?
(b) Prepare a flexible budget report for the year.
(c) Based on the flexible budget report, answer the three questions in part (a) above.
(d) What course of action do you recommend for the management of Z-Bar Pastures?
(Data for this case are based on Hans Sprohge and John Talbott, "New Applications for Variance