$3.$ As a sales manager, Hank Short was given the following static budget report for selling expenses in the Winter Sports Department of Jennings Outdoor Company for the month of November.

Jennings Outdoor Company

Winter Sports Department

Budget Report

For the Month Ended November $30,2017$

Difference

Favorable F

Budget Actual Unfavorable U

Sales in units $4,0004,500500$ F

Variable expenses

Sales commissions $$120,000$ $$128,000$ $ $8,000$ U

Advertising expense $38,00041,2503,250$ U

Travel expense $185,000202,12517,125$ U

Demonstration models given out $100,00090,7509,250$ F

Total variable $443,000462,12519,125$ U

Fixed expenses

Rent $7,5007,500-0-$

Sales salaries $60,00060,000-0-$

Office salaries $40,00040,000-0-$

Depreciation $$ vans $($sales staff$)2,5003,000*500$ U

Total fixed $110,000110,500500$ U

Total expenses $$553,000$ $$572,625$ $ $19,625$ U

$*$The increase in depreciation was due to a new vehicle that had to be purchased as a result of an accident driving on snowy roads on the way to visit a customer.

Because of this budget report, Hank 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. Hank knew something was wrong with the performance report that he had been given. However, he was not sure what to do and came to you for advice.

Instructions

$($a$)$ Prepare a budget report based on flexible budget data to help Hank.

$($b$)$ Should Hank have been reprimanded? Explain.

$($c$)$ After Hank became familiar with the flexible budget report, he began to analyze the numbers. Hank feels that sales can be increased if Jennings Outdoor Company would increase sales commissions to $$31$ per unit. This would allow them to reduce advertising expenses to $$8\mathrm{.}00$ per unit. Hank thinks that these changes will motivate the sales staff to sell at least $5,500$ units. He can try his plan in December and had the following results.

Jennings Outdoor Company

Winter Sports Department

Results

For the Month Ended December $31,2017$

Sales in units $5,500$

Variable expenses

Sales commissions $$164,000$

Advertising expense $42,000$

Travel expense $247,000$

Demonstration models given out $116,000$

Total variable $569,000$

Fixed expenses

Rent $7,500$

Sales salaries $60,000$

Office salaries $40,000$

Depreciation $$ vans $($sales staff$)3,000$

Total fixed $110,500$

Total expenses $$679,500$

Prepare a budget report based on flexible budget data. The new depreciation amount has been included in the budgeted fixed costs. Do you think the new plan is valid? Explain.