Old Rosebud is a Kentucky horse farm that specializes in boarding thoroughbred breeding mares and their foals. Customers bring their breeding mares to Old Rosebud for delivery of their foals and after-birth care of the mare and foal. Recent changes in the tax laws brought about a substantial decline in thoroughbred breeding. As a result, profits declined in the thoroughbred boarding industry.

Old Rosebud prepared a master budget for the current year by splitting costs into variable costs and fixed costs. The budget was prepared before the extent of the downturn was fully recognized.

Table 1 above compares actual with budget for the current year.

Required:

Prepare an analysis of the operating performance of Old Rosebud Farms. Supporting tables or calculations should be clearly labeled.

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TABLE 1 Number of mares Number of boarding days Revenues Less variable expenses Feed & supplies Veterinary fees Blacksmith fees Total variable expenses Contribution margin Less fixed expenses Depreciation & insurance Utilities Repairs & maintenance Labor Total fixed expenses Net income *F = Favorable; U = Unfavorable. OLD ROSEBUD FARMS Income Statement for Year Ended 12/31 Budget Formula (per Mare per Day) $25.00 5.00 3.00 30 8.30 $16.70 Actual 52 18,980 $379,600 104,390 58,838 6,074 169,302 $210.298 $ 56,000 12,000 10,000 88,000 166,000 $ 44,298 Master Budget 60 21,900 $547,500 109,500 65,700 6,570 181,770 $365,730 $ 56,000 14,000 11,000 96,000 177,000 $188,730 Variance 8 2.920 $167,900 U 5,110 F 6,862 F 496 F 12,468 F $155,432 U $ 2,000 F 1,000 F 8,000 F 11,000 F $144,432 U