General Instructions: Your responsibility is to, in part, prepare the 2020 budget using prior year data and the information included with the instructions tab.

1. Actual column: compute the break even in units and dollars. Compute the margin of safety.

2. Flexible Budget column: Complete the 2020 Flexible Budget column incorporated with the budget and variance analysis tab. The flexible budget includes several changes to the data. The changes are listed in the Excel file / Instructions Tab.

2a. Compute variances.

2b. Explain the variances.

2c. Compute the break even in units and dollars.

2d. Compute the margin of safety.

The format used is a variable costing income statement.

Instructions: Use Excel formulas in all applicable cells. Actual Column 1 Column F, rows 50-56. Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety. Flexible Budget Column 3 1 Prepare a flexible budget using estimated annual unit sales = 3,500. Enter volume in the Budget and Variance Analysis tab, column H, row 4. Enter all other data and calculations in the appropriate cells (column H). 2 The company adopted the accrual method of accounting in 2019. The cumulative affect of change in accounting principle, net of tax, equal to $35K was recorded with their GAAP based financial statements. The company purchased equipment equal to $20,000. Terms: 5 year loan with an interest rate equal to 4.8% and $5,000 cash down payment. Depreciation: Straight-line method, 5 year useful life, no residual value. 4 Increase the average animal fee by 1.75% for the first five months and 2.85% for the remaining seven months of the year. 5 The owner's sister is stationed in Europe with the military and wants to open another location or help with animal training for the military after she transitions to civilian life. Estimated start-up costs are $25K. She doesn't know if this will occur nor is the owner definitively planning for this option. 6 The owner is evaluating regional competitors for a potential business acquisition. Approximately $5,000 will be invested with a third party search firm in 2020. 7 Excess cash was invested in an S&P 500 Index fund with estimated annual capital gain and dividend income equal to $11,000. 8 The company sold grooming equipment for a $500 dollar gain. However, the equipment is not expected to be delivered to the buyer nor will the owner receive payment. 9 The company is diversifying into animal training and recorded unearned income in 2019 equal to $175,000 for cash advances from the U.S. government. The company expects to train several animals for special operation forces in 2020. Earned income is estimated to be $125,000. 10 Increase the variable cost per unit (animal) by 2.75%. This applies to all variable cost categories (excluding advertising, bedding, and specialty food). 11 The driver for bedding and specialty food is the number of non-traditional animals. The company expect 320 animals per year at an average cost of $1.75 per animal for bedding and $1.35 per animal for specialty food. 12 The company plans to relocate the business. This may increase rent by $750. 13 The company uses a dated advertising program including the yellow pages and billboard signs. The company plans to reduce costs and increase effectiveness by investing in an online campaign. The cost structure changes to a mixed cost and includes $1200 fixed plus variable costs. The variable cost is equal to .05 per online view plus $4.00 for appointments scheduled online. The company expects 1,550 views and 225 scheduled appointments. 14 Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety. Enter the information in the Budget and Variance Analysis tab, rows 50-56. 15 Use formulas to compute variances and explain why the variances are positive or negative. Enter formulas in the Budget and Variance Analysis tab column J. Write your explanations in column L. B C D E F G H = J K - 1 2020 Annual Budget and Variance Analysis 2 3 4 Annual Sales Volume (units) 2800 Enter sales volume in colum H, row 4. 5 Per Flexible Budget 6 Unit Actual Variance Variance Explanation 7 8 39.5 110,600 Sales Investment Income 9 110,600 10 Gain - Sale of Equipment 11 Military training - special operations 12 13 Total Income 14 15 Less: Variable Expenses 16 Rewards 17 Feed 18 Veterinary Fees 19 Labor 20 Supplies 21 Contractors 22 Advertisement 23 Bedding 24 Specialty Food 25 26 Total Variable Expenses 27 28 Contribution Margin 29 0.07 2.75 3.75 1.25 1.80 196 7,700 10,500 3,500 5,040 2,520 0.90 29,456 81,144 1 2020 Annual Budget and Variance Analysis 2 3 4 5 Annual Sales Volume (units) 2800 Enter sales volume in colum H, row 4. Per Flexible Budget 6 Unit Actual Variance Variance Explanation 350 780 435 5,675 29 30 Less: Fixed Expense 31 32 Lease 33 Depreciation 34 Interest & Penalties 35 Insurance 36 Acquisition 37 Rent 38 Advertisement 39 Repairs & Maintenance 40 Entertainment 41 SG&A 42 Utilities 43 Taxes 44 45 Total Fixed Expense 46 47 Net Income (Loss) 48 49 50 Break Even (Units) 51 52 53 Break Even (Dollars) 54 55 56 Margin of Safety (Dollars) 57 6,700 4,700 3,460 4,075 2,300 3,450 5,800 37,725 43,419