Fresh Meadows is a 400-acre farm on the outskirts of the St Louis, specializing in the boarding of broodmares and their foals. The recent news articles have caused downturn in the thoroughbred industry has led to a decline in breeding activities, and it has made the boarding business extremely competitive.

To meet the competition, Fresh Meadows planned in 2019 to entertain clients, advertise more extensively.

The static budget report (prepared at the start of 2019) for 2019 is presented as an attachment.

As shown, the static income statement budget for the year is based on an expected 20,000 boarding days at $28 per mare. The variable expenses per mare per day were budgeted: feed $5.00, veterinary fees $3.00, blacksmith fees $0.25, and supplies $0.55. All other budgeted expenses were either semi fixed or fixed.

During the year, management decided not to replace two worker who retired in March, but it did issue a new advertising brochure.

Prepare a 700-to 1,050-word memo and include the following:

• Prepare a flexible budget report for the year.
• Based on the static budget given and flexible budget you have created:
• What was the primary cause(s) of the decrease in net income?
• Did management do a good, average, or poor job of controlling variable expenses?
• Were management's decisions to lower prices, advertise & entertain, and leave positions vacant good ideas?
• Show all of your calculations.

Budget Report For the Year Ended December 31, 2019 Budget Actual Difference- Budget Per BD Per BD Total 60 Total 40 Boarders 20 U 365.00 20,000 365.00 14,600 5,400 V Boarding days (BD) 0 1 Sales 2 Less variable expenses $28.00 $500,000 $26.00 $379,600 $120,400.00 U 3 4 U Feed $ 5.00 $ 100,000 Veterinary fees $ 3.00 60,000 Blacksmith fees $ 0.25 5,000 Supplies $ 0.55 11,000 $ 8.80 $19.20 $ 5.21 $ 76,000 $ 3.42 50,000 $ 0.27 4,000 $ 0.49 7,200 $176,000 $ 9.40 $324,000 $16.60 $ 24,000 F 10,000 F 1,000 F 3,800 F $137,200 $ 38,800.00 F $242,400$ 81,600 U 6 7 Total Variable expenses 3 Contribution margin 9 Less fixed expenses 0 $ 1 2 3 Depreciation Insurance Utilities Repairs Labor Advertising Entertainment $ 40,000 11,000 14,000 11,000 95,000 8,000 5,000 $ 40,000 11,000 12,000 10,000 76,000 10,000 7,000 5 2,000 F 1,000 F 19,000 F 2,000 U 2,000 U 18,000 F 63,600 U 6 7 Total fixed expenses 8 Net income $184,000 $140,000 $166,000 $ $ 76,400 $ lo Flexible Budget Report For the Year Ended December 31, 2017 Budget Actual Difference- PBD Difference- Flex Per Boarding Day Flex-Budget Per Boarding Day Per Boarding Total Day Total Per Boarding Day Total Boarders 60 40 Boarding days (BD) 365.00 20,000 14,600 $ 28.00 $500,000 $ 26.00 $379,600 $ (2.00) Sales Less variable expenses Feed $ 5.00 $ 100,000 Veterinary fees $ 3.00 60,000 Blacksmith fees $ 0.25 5.000 Supplies $ 0.55 11,000 $ 8.80 $ 19.20 $ 5.21 $ 76,000 $ 3.42 50,000 $ 0.27 4,000 $ 0.49 7,200 $ $ 16.60 $ (5.21) $ (3.42) $ (0.27) $ (0.49) $137,200 $ (9.40) $242,400 $ 9.40 $ 137,200 Total Variable expenses Contribution margin Less fixed expenses $176,000 $324,000 Depreciation Insurance Utilities Repairs Labor Advertising Entertainment $ 40,000 11,000 14.000 11,000 95,000 8,000 5,000 $ 40,000 11,000 12,000 10,000 76,000 10,000 7,000 Total fixed expenses Vet income $184,000 $140,000 $ 166,000 $ 76,400 $ 166,000 $ 76,400