financeGreen Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass, specializing in the boarding of broodmares 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, Green Pastures planned in 2017 to entertain clients, advertise more extensively, and absorb expenses formerly paid by clients such as veterinary and blacksmith fees.
The budget report for 2017 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: 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.
$$
\begin{array}{c}
\textbf{GREEN PASTURES}\\
\textbf{Static Budget Income Statement}\\
\textbf{For the Month Ended December 31, 2017}\\
\end{array}
$$
| | | | Difference |
|-----------------------------|:------------:|:------------:|:-----------------------------:|
| | **Budget** | **Actual** | **Favorable F Unfavorable U** |
| **Number of mares** | **52** | **60** | **8 U** |
| **Number of boarding days** | **19,000** | **21,900** | **2,900 U** |
| _Sales_ | _$380,000_ | _$547,500_ | _$167,500 U_ |
| Less: Variable expenses | | | |
| Feed | 104,390 | 109,500 | 5,110 F |
| Veterinary fees | 58,838 | 65,700 | 6,862 F |
| Blacksmith fees | 4,984 | 5,475 | 491 F |
| Supplies | 10,178 | 12,045 | 1,867 F |
| **Total variable expenses** | **178,390** | **192,720** | **14,330 F** |
| _Contribution margin_ | _201,610_ | _354,780_ | _153,170 U_ |
| Less: Fixed expenses | | | |
| Depreciation | 40,000 | 40,000 | –0– |
| Insurance | 11,000 | 11,000 | –0– |
| Utilities | 12,000 | 14,000 | 2,000 F |
| Repairs and maintenance | 10,000 | 11,000 | 1,000 F |
| Labor | 88,000 | 95,000 | 7,000 F |
| Advertisement | 12,000 | 8,000 | 4,000 U |
| Entertainment | 7,000 | 5,000 | 2,000 U |
| _Total fixed expenses_ | _180,000_ | _184,000_ | _4,000 F_ |
| **Net income** | **$ 21,610** | **$170,780** | **$149,170 U** |
***Instructions***
With the class divided into groups, answer the following.
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