Question

As sales manager, Joe Batista was given the following static budget report for selling expenses in...

As sales manager, Joe Batista was given the following static budget report for selling expenses in the Clothing Department of Soria Company for the month of October.

Clothing Department
Budget Report
For the Month Ended October 31, 2020

Difference


Budget


Actual

Favorable
Unfavorable

Neither Favorable
nor Unfavorable

Sales in units

8,000

10,000

2,000

Favorable
Variable expenses
    Sales commissions

$2,400

$2,600

$200

Unfavorable
    Advertising expense

720

850

130

Unfavorable
    Travel expense

3,600

4,100

500

Unfavorable
    Free samples given out

1,600

1,400

200

Favorable
       Total variable

8,320

8,950

630

Unfavorable
Fixed expenses
     Rent

1,500

1,500

–0–

Neither Favorable nor Unfavorable
     Sales salaries

1,200

1,200

–0–

Neither Favorable nor Unfavorable
     Office salaries

800

800

–0–

Neither Favorable nor Unfavorable
     Depreciation—autos (sales staff)

500

500

–0–

Neither Favorable nor Unfavorable
       Total fixed

4,000

4,000

–0–

Neither Favorable nor Unfavorable
Total expenses

$12,320

$12,950

$630

Unfavorable


As a result of this budget report, Joe was called into the president’s office and congratulated on his fine sales performance. He was reprimanded, however, for allowing his costs to get out of control. Joe knew something was wrong with the performance report that he had been given. However, he was not sure what to do, and comes to you for advice.

Prepare a budget report based on flexible budget data to help Joe.

Homework Answers

Answer #1
difference
Budget actual
Sales in units per unit 10,000 10,000
Variable expenses
sales commission 2400/8000 0.3 3000 2,600 400 F
advertising expense 720/8000 0.09 900 850 50 F
travel expense 3600/8000 0.45 4500 4,100 400 F
free samples given 1600/8000 0.2 2000 1,400 600 F
total variable 1.04 10400 8,950 1,450 F
Fixed expenses
Rent 1,500 1,500 0 N
sales salaries 1,200 1,200 0 N
office salaries 800 800 0 N
Depreciation 500 500 0 N
total fixed 4,000 4,000 0 N
total expenses 14,400 12,950 1,450 F
Budget = variable cost per unit*10000 units
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