DIRECTIONS for Flexible Budget Performance Report:

1. Copy and Paste all of the line items (account names) from the master budget into the Flexible Budget Performance report.

2. Copy and Paste all of the actual figures from the master budget to the actual column of the Flexible Budget Performance report.

3. Formulate the Master Budget figures by referencing (e.g., +B7) the appropriate cells in the first performance report. By doing so, if any assumptions change, they will ripple through BOTH performance reports.

4. Build the Flexible Budget by using the ACTUAL SALES VOLUME achieved along with the original budget assumptions. This is very similar to building a master budget, except you are using actual sales volume. Assume the actual sales volume achieved is in the same relevant range as the original budget assumptions. Try using the accounting or currency settings to get dollar signs, commas, and brackets on negative numbers. Add underscores and double underscores as needed.

5. Head the appropriate column for the Volume Variance and then use Excel formulas to populate the cells in that column (e.g., +H33-J33). Once you get the first cell done, copy and paste the formula to the other cells.

6. Head the appropriate column for the Flexible Budget Variance and then use Excel formulas to populate the cells in that column (e.g. +F33-H33). Again, copy and paste the formulas to the other cells.

7. Use the following check figures to make sure youve got the performance report properly formatted:

Shipping Expense

$44,814

$2,134

$42,680

$2,680

$40,000

Lease on Distribution center

$15,000

$ (2,000)

$ 17,000

$0

$17,000

Contribution margin

$329,133

$ 7,966

$321,167

$20,167

$301,000

8. To save time, we wont add the U and F designations to the flexible budget performance report. However, youll need to mentally figure out which way they go. The interpretation of the volume variance is a little problematic because it compares two budgets, rather than budget vs. actual. HINT: Think of the MASTER BUDGET as the companys target when determining whether the volume variance should be designated as a U or F.

9. Answer the following questions:

1. What is the Flex budget variance for operating income? $_____________ F or U?

2. What is the Volume variance for operating income? $____________F or U?

3. Does the combination of the flex budget variance and volume variance sum to the master budget variance for operating income? Y or N? Should they always sum to the master budget variance? Y or N? What if one variance is U and the other is F.will they still sum to the master budget variance? Explain.

4. How much of the master budget variance for Sales revenue was caused by an unanticipated increase in volume?__________________ F or U?

5. How much of the master budget variance for Commissions Exp. was caused by an unanticipated increase in volume?__________________ F or U?

6. How much of the master budget variance for Advertising Expenses was caused by an unanticipated increase in volume?__________________ F or U?

7. How much of the master budget variance for CGS was caused by some factor other than volume? $__________ F or U? What could account for this variance?

8. How much of the master budget variance for Sales Revenue was caused by some factor other than volume? $__________ F or U? What could account for this variance?

1. How much of the master budget variance for Advertising Exp. was caused by some factor other than volume? $__________ F or U? What could account for this variance?

10. Auditors always look at the variances between actual and budget or actual and last year. Say you were auditing this client and they gave you the following story (below). Is the story consistent with the overall pattern of variances? Which elements of the story are consistent with the explanations? Which variances are inconsistent, or left unexplained? Be sure to analyze every line item on the budget.

Client Story: In order to motivate our sales force to increase sales, we decided to increase our commissions and salaries. At the same time, our supplier increased its prices, and we felt we could pass that cost increase on to our customers in the form of price increase. However, with the additional pressure to make sales, coupled with the increased sales price, we had to loosen credit terms on sales. We also had to lease out a little extra distribution space and acquire another truck to handle the volume increase.

NOTE: In the table below, classify EACH ACCOUNT on the budget according to whether the variances in the performance report are consistent or inconsistent/unexplained with the clients story. Be sure to list each of the 10 accounts.

Consistent	Inconsistent/Unexplained

Kelsey's Frozen Confectionaries Master Budget Performance Report For the month ended June 30 MASTER ACTUAL BUDGET 21,340 $ 20,000.00 For U VARIANCE $ (1,340.00) VAR. % -6.7% U Volume (in cases) $ 1,131,020 $1,000,000.00 $ (131,020.00) -13.1% U $ $ $ 682,880 $ 600,000.00 58,685 $ 50,000.00 44,814 $ 40,000.00 15,508 $ 9,000.00 329,133 $ 301,000.00 $ $ $ $ $ (82,880.00) (8,685.00) (4,814.00) (6,508.00) (28,133.00) -13.8% U -17.4% U -12.0% U -72.3% U -9.3% U Sales Revenue Less Variable Expenses: Cost of Goods Sold Sales Commissions Shipping Expense Bad debt expense Contribution Margin Less Fixed Expenses: Salaries Lease on Distn center Deprec. on fleet/equip Advertising Office rent, phone, net Operating Income $ $ (4,000.00) 2,000.00 44,000 15,000 12,000 7,500 12,000 238,633 $ 40,000.00 $ 17,000.00 $ 12,000.00 $ 10,000.00 $ 11,000.00 $ 211,000.00 $ $ $ 2,500.00 (1,000.00) (27,633.00) -10.0% U 11.8% F 0.0% F 25.0% F -9.1% U -13.1% U Kelsey's Frozen Confectionaries Fexible Budget Performance Report For the month ended June 30 FLEXIBLE MASTER