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As sales manager, Joe Batista was given the following static budget report for s

ID: 2518473 • Letter: A

Question

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. SORIA COMPANY Clothing Department Budget Report For the Month Ended October 31, 2017 Difference Budget Actual Favorable Unfavorable Neither Favorable nor Unfavorable Sales in units 7,500 10,000 2,500 Favorable Variable expenses Sales commissions $1,950 $2,500 $550 Unfavorable Advertising expense 1,050 900 150 Favorable Travel expense 3,000 4,500 1,500 Unfavorable Free samples given out 1,125 1,100 25 Favorable Total variable 7,125 9,000 1,875 Unfavorable Fixed expenses Rent 1,800 1,800 –0– Neither Favorable nor Unfavorable Sales salaries 1,200 1,200 –0– Neither Favorable nor Unfavorable Office salaries 700 700 –0– Neither Favorable nor Unfavorable Depreciation—autos (sales staff) 600 600 –0– Neither Favorable nor Unfavorable Total fixed 4,300 4,300 –0– Neither Favorable nor Unfavorable Total expenses $11,425 $13,300 $1,875 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

Explanation / Answer

Answer:

SORIA COMPANY

Selling Expense Flexible Budget Report

Clothing Department

For the Month Ended October 31, 2017

Difference

Varable
Cost
per unit

Budget

Actual

Favorable (F)

Unfavorable (U)

Neither favorable

nor unfavorable (N)

Sales in units

10,000

10,000

Variable expenses

    Sales commissions

0.26

2600

$2,500

$100

F

    Advertising expense

0.14

1400

$900

$500

F

    Travel expense

0.4

4000

$4,500

$500

U

    Free samples given out

0.15

1500

$1,100

$400

F

       Total variable

0.95

9500

$9,000

$500

F

Fixed expenses

     Rent

1,800

1,800

0

     Sales salaries

1,200

1,200

0

     Office salaries

700

700

0

     Depreciation—autos (sales staff)

600

600

0

       Total fixed

4,300

4,300

0

Total Cost

13,800

13,300

500

F

Notes :

variable cost for 10,000 units are calculated by following formula

=Variable cost per units x 10,000 units

_____________________________________________

2

joe should have not been reprimanded as per the flexible budget report

Explanation

As we can see in the flexible budget report that there is a favorable variance of $ 500(which means actual cost is less than standard cost to be incurred)

SORIA COMPANY

Selling Expense Flexible Budget Report

Clothing Department

For the Month Ended October 31, 2017

Difference

Varable
Cost
per unit

Budget

Actual

Favorable (F)

Unfavorable (U)

Neither favorable

nor unfavorable (N)

Sales in units

10,000

10,000

Variable expenses

    Sales commissions

0.26

2600

$2,500

$100

F

    Advertising expense

0.14

1400

$900

$500

F

    Travel expense

0.4

4000

$4,500

$500

U

    Free samples given out

0.15

1500

$1,100

$400

F

       Total variable

0.95

9500

$9,000

$500

F

Fixed expenses

     Rent

1,800

1,800

0

     Sales salaries

1,200

1,200

0

     Office salaries

700

700

0

     Depreciation—autos (sales staff)

600

600

0

       Total fixed

4,300

4,300

0

Total Cost

13,800

13,300

500

F