Financial and Managerial Accounting: P23-7A Four Flags is a retail department store

Financial and Managerial Accounting 
P23-7A Preparing and Using a Flexible Budget 
Four Flags is a retail department store. The following cost-volume relationships were used in developing a flexible budget for the company for the current year: 
Yearly Fixed Expenses Variable Expenses per Sales Dollar
Cost of merchandise sold 0.600 
Selling and promotion expense 210,000 0.082 
Building occupancy expense 186,000 0.022 
Buying expense 150,000 0.040 
Delivery expense 111,000 0.010 
Credit and collection expense 72,000 0.002 
Administrative expense 531,000 0.003 
Totals 1,260,000 0.759 

Management expected to attain a sales level of $12 million during the current year. At the end of the year, the actual results achieved by the company were as follows:  
Net sales 10,500,000 
Cost of goods sold 6,180,000 
Selling and promotion expense 1,020,000 
Building occupancy expense 420,000 
Buying expense 594,000 
Delivery expense 183,000 
Credit and collection expense 90,000 
Administrative expense 564,000 

Instructions  
a.  Prepare a schedule comparing the actual results with flexible budget amounts developed for the actual sales volume of $10,500,000. Organize your schedule as a partial multiple-step income statement, ending with operating income. Include separate columns for (1) flexible budget amounts, (2) actual amounts, and (3) any amount over (under) budget. Use cost volume relationships given in the problem to compute the flexible budget amounts.  
b. Write a statement evaluating the company’s performance in relation to the plan reflected in the flexible budget.
Powered by