Flexible Budget Performance Report Project

Kelseys Frozen Confectionaries buys and distributes single-serve ice cream treats, popsicles, etc., such as those sold at convenience stores, sporting events and amusement parks. Download the file containing Kelseys budget assumptions and actual figures for June. The file also contains a draft for both a 1) master budget performance report, and 2) a flexible budget performance report.

You will work in teams of two. Turn in ONE project per team. If you or your partner feels you did not share equally in the work, email me for a possible grade adjustment. Otherwise, you will both receive the same grade. Hand in this completed direction packet by ______________ at class time and email your Excel file to __ Use Flex Budget_Last Name_Last name as the subject line in the email. ALSO, put BOTH of your names on the FILE NAME of your Excel spreadsheet.

DIRECTIONS for Master Budget Performance Report:

Use the budget assumptions, along with Excel formulas, to populate the Master Budget column. Note: Your formulas must work such that if ANY of the budget assumptions change, the new assumptions ripple through the entire budget. Part of your grade will be based on whether you correctly formulated the cells. Do NOT TYPE A NUMBER IN ANY CELL!!!

Use a formula to calculate the variance in cell H7: (Actual Budget). Copy and paste the formula to the rest of the cells in the column. Leave as positive or negative, rather than absolute values.

Use a formula to calculate the Variance percentage. NOTE: The percentage is the variance as a percent of the Master Budget. Copy and paste the formula to the rest of the cells in the column

Format cells appropriately (dollar signs using the accounting or currency format, underlines, double underlines, zero decimal places for dollar amounts, etc.,).

Use the If statement function to show the variances as U or F. The If statement can be found under Formulas, Logical. Example: =IF(H7>=0,"F","U"). This formula means If cell H7>0 or H7=0, then mark as F. If not greater than or equal to 0, mark as U. Be careful with revenues and expense variances since youll want them to be opposite of one another. Any variance of 0 should be shown as F since it meets budget expectations.

Check your answers using the following check figures: Budgeted CM= $301,000; Budgeted Op Inc. = $211,000; Variance for Commissions = $8,685; Variance percentage for Commissions = 17.4 %, Unfavorable.

Answer the following questions:

What is the master budget variance for Shipping exp.? $_____________, ___%, U or F? What does it mean?

What is the master budget variance for Lease Exp? $______________, _____%, U or F ?What does it mean?

Use management by exception to determine which variances to investigate. HINT: In column K, use the If function, along with Absolute value function to find the variances that are larger than the decision rule. Also, since the decision rule is in B21 and you want Excel to always compare to B21, you need to make it an absolute reference: $B$21.

For example, =IF(ABS(K7)>($B$21),"yes","no").

Now check to see if everything ripples through the budget if you change an assumption. Try changing the assumed sales volume to 20,500 and Shipping expense to $2.10 per case. You should have a new total variance for operating income of $21,287, 9.8% variance, F.

Change the sales volume assumption back to $20,000 and the shipping expense assumption back to $2.00.

DIRECTIONS for Flexible Budget Performance Report:

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

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

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.

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 underlines and double underlines as needed.

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.

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.

Format the report appropriately (Dollar signs, underscores, double underscores, etc.,) Use the following check figures to check your formulas so far:

Shipping Expense

$44,213

$1293

$42,920

$2,920

$40,000

Lease on Distn center

$15,500

$ (1,500)

$17,000

$ -

$17,000

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.

Answer the following questions:

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

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

Does the combination of the flex budget variance and volume variance sum to the master budget variance for operating income? Y or N? Should it always sum to the master budget variance? Y or N?

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

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

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

How much of the master budget variance for CGS was caused by some factor other than volume? (Hint: this is NOT a manufacturing business). $__________ F or U? What could account for this variance?

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?

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?

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. (SEE NEXT PAGE.)

Client Story: In order to motivate our sales force to increase sales, we decided to increase our commissions and salaries and increase marketing. 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 a little more distribution space and acquire another truck to handle the volume increase. Our shipping expense relates to gasoline on deliveries. Luckily, gas prices went down from what we originally expected this year.

In the table below, classify EACH ACCOUNT on the budget according to whether the variances in the performance report are consistent or inconsistent with the clients story, or unexplained by the clients story. Place an X in the appropriate column. If the Flexible Budget Variance and Sales Volume Variance differ with respect to one account (i.e., one is consistent and one is inconsistent) then indicate which belongs in which column.

	Consistent	Inconsistent	Unexplained
Sales revenue
Cost of Goods Sold
Commission
Shipping Expense
Bad debt expense
Salaries
Lease of distribution center
Depreciation of fleet and equip
Advertising
Office rent, phone, internet

Kelsey's Frozen Confectionaries Master Budget Performance Report For the month ended June 30 20,000 cases Sales Revenue $50.00 per case MASTER Percent sold on credit 90% percent of sales ACTUAL BUDGET VARIANCE VAR. % Investigate? Volume (in cases) 21,460 $30.00 per case 2.50 percase 2.00 per case $1,131,020 CGS Sales Commission Shipping Expense Bad Debt Expense Sales Revenue Less Variable Expenses: Cost of Goods Sold Sales Commissions Shipping Expense Bad debt expense Contribution Margin Less Fixed Expenses: 682,880 58,685 44,213 16,930 328,312 1.00% percent of credit sales Salaries Lease on Distribution center Depreciation on fleet & Equip Advertising Office rent, phone, internet $ 40,000 5 17,000 $12,000 $ 10,000 11,000 Salaries Lease on Distn center Deprec. on fleet/equip Advertising Office rent, phone, net 43,000 5,500 12,000 7,750 12.300 237,762 Man t by exception 15% Investi on rule Operating Income 1) If you get a series of hashmarks (######) it just means your column width is not wide enough to accomodate the number. Increase column width and/or delete extra decimal places. Kelsey's Frozen Confectionaries Fexible Budget Performance Report For the month ended June 30 2. To add numbers, put your cursor on the cell where you want the answer to be. Then keystroke the addition sign (+) and then click on the cell you want add, then keystroke the addition sign again() and click on the second cell you want to add. Continue in the same fashion for multiple cells. Use the subtraction sign (-) for subtracting cells. If you have an array of cells to add, you can use the AutoSum button. ACTUAL BUDGET MASTER BUDGET 3. To multiply, use the symbol. To divide, use the /symbol. 4. Make use of copy/paste commands when you want similar forumulas in different cells. 5 Always check the logic of your results after entering formulas to make aare the snreadsheet it daine what nu really want it to edn Kelsey's Frozen Confectionaries Master Budget Performance Report For the month ended June 30 20,000 cases Sales Revenue $50.00 per case MASTER Percent sold on credit 90% percent of sales ACTUAL BUDGET VARIANCE VAR. % Investigate? Volume (in cases) 21,460 $30.00 per case 2.50 percase 2.00 per case $1,131,020 CGS Sales Commission Shipping Expense Bad Debt Expense Sales Revenue Less Variable Expenses: Cost of Goods Sold Sales Commissions Shipping Expense Bad debt expense Contribution Margin Less Fixed Expenses: 682,880 58,685 44,213 16,930 328,312 1.00% percent of credit sales Salaries Lease on Distribution center Depreciation on fleet & Equip Advertising Office rent, phone, internet $ 40,000 5 17,000 $12,000 $ 10,000 11,000 Salaries Lease on Distn center Deprec. on fleet/equip Advertising Office rent, phone, net 43,000 5,500 12,000 7,750 12.300 237,762 Man t by exception 15% Investi on rule Operating Income 1) If you get a series of hashmarks (######) it just means your column width is not wide enough to accomodate the number. Increase column width and/or delete extra decimal places. Kelsey's Frozen Confectionaries Fexible Budget Performance Report For the month ended June 30 2. To add numbers, put your cursor on the cell where you want the answer to be. Then keystroke the addition sign (+) and then click on the cell you want add, then keystroke the addition sign again() and click on the second cell you want to add. Continue in the same fashion for multiple cells. Use the subtraction sign (-) for subtracting cells. If you have an array of cells to add, you can use the AutoSum button. ACTUAL BUDGET MASTER BUDGET 3. To multiply, use the symbol. To divide, use the /symbol. 4. Make use of copy/paste commands when you want similar forumulas in different cells. 5 Always check the logic of your results after entering formulas to make aare the snreadsheet it daine what nu really want it to edn