BLUE PASTURES (KENTUCKY DERBY BREEDS) Static Budget Income Statement For the Year Ended December 31, 2015
	Actual	Master Budget (Static)	Difference	Flexible Budget	Difference
Number of Mares	52	60	8 U
Number of Boarding Days	18,980	21,900	2,920 U
Sales	$379,600	$547,500	$167,900 U
Less: Variable Expenses
Feed	104,390	109,500	5,110 F
Veterinary Fees	58,838	65,700	6,862 F
Blacksmith Fees	6,074	6,570	496 F
Supplies	7,402	8,760	1,358 F
Total Variable Expenses	176,704	190,530	13,826 F
Contribution Margin	202,896	356,970	154,074 U
Less: Fixed Expenses
Depreciation	45,000	45,000	0
Insurance	11,000	11,000	0
Utilities	12,000	14,000	2,000 F
Repairs/maintenance	10,000	11,000	1,000 F
Labor	88,000	96,000	8,000 F
Advertisement	12,000	8,000	4,000 F
Entertainment	7,000	5,000	2,000 F
Total Fixed Expenses	185,000	190,000	5,000 F
Net Income	$17,896	$166,970	$149,074 F

Blue Pastures, Inc. (Home of the Kentucky Breeds) [Flexible Budgeting]

The budget report for 2015 is presented above. As shown, the static income statement budget for the year is based on an expected 21,900 boarding days at $25 per mare. The variable expenses per mare per day were budgeted at: Feed $5.00, Veterinary fees $3.00, Blacksmith fees $0.30, and Supplies $0.40. All other budgeted expenses were fixed.

During the year, management decided not to replace a worker who quit in March, but the firm issued a new advertising brochure and did more entertaining of clients.

Required (Show all work):

a) Charley Horse, owner of Blue Pastures, has hired you as his manager. He is terribly upset by the farm's decreased profitability and the unfavorable variances he sees when he compares the master budget to actual revenues and costs. What does you think causes the net loss?

b) Next, complete the flexible budget report in the last two columns of the table above.

c) Finally, write a memo to Mr. Horse explaining the actual causes for the loss of income and recommending actions that Blue Pastures can take to improve profitability.