CE 24-1

As 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 4,000 4,600 500 F

Variable expenses

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

Advertising expense 38,000 41,250 3,250 U

Travel expense 185,000 202,125 17,125 U

Demonstration models given out 100,000 90,750 9,250 F

Total variable 443,000 462,125 19,125 U

Fixed expenses

Rent 7,500 7,500 -0-

Sales salaries 60,000 60,000 -0-

Office salaries 40,000 40,000 -0-

Depreciation vans (sales staff) 2,500 3,000* 500 U

Total fixed 110,000 110,500 500 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.

As a result of this budget report, Hank was called into the presidents 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 comes to you for advice.

Instructions

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

Should Hank have been reprimanded? Explain.

After Hank because 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 expense to $8.00 per unit. Hank thinks that these changes will motivate the sales staff to sell at least 5,500 units. He is allowed to try his plan in December and had the following results.

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.

CE 24-1 (cont.)

Jennings Outdoor Company

Winter Sports Department

Results

For the Month Ended December 31, 2017

Sales in units 6,500

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