Green Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass, specializing in the boarding of broodmares and their foals. A recent economic 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, Green Pastures planned in 2017 to entertain clients, advertise more extensively, and absorb expenses formerly paid by clients such as veterinary and blacksmith fees. The budget report for 2017 is presented as an attachment. As shown, the static income statement budget for the year is based on an expected 21,900 boarding days at $25 per mare. The variable expenses per mare per day were budgeted: feed $5, veterinary fees $3, blacksmith fees $0.25, and supplies $0.55. All other budgeted expenses were either semifixed or fixed. During the year, management decided not to replace a worker who quit in March, but it did issue a new advertising brochure and did more entertaining of clients.

1. What was the primary cause(s) of the loss in net income?
2. Did management do a good, average, or poor job of controlling expenses?
3. Were management's decisions to stay competitive sound?
4. Prepare a flexible budget report for the year.
   1. What was the primary cause(s) of the loss in net income?
   2. Did management do a good, average, or poor job of controlling expenses?
   3. Were management's decisions to stay competitive sound?
   4. What course of action do you recommend for the management of Green Pastures?

Green Pastures Static Budget Income Statement For the Year Ended December 31, 2017 Master Budget Difference Number of Mares Actual 52 19.000 $380.000 Number of Boarding Days 2.900 21.900 $547,500 Sales $167,500 U Less: Variable Expenses Feed 5.110 F 104,390 58,838 109,500 65,700 Veterinary Fees 8,862 F Blacksmith Fees 4,984 5.475 491 F Supplies 10,178 1,867 F Total Variable Expenses 178,390 201,810 12,045 192,720 354,780 14,330 F 153,170 U Contribution Margin Less: Fixed Expenses Depreciation 40,000 Insurance 40,000 11,000 12,000 11,000 Utilities 14.000 2.000 F1 1,000 F Repairs and Maintenance 11,000 10,000 88,000 Labor 95,000 8,000 Advertisement 12,000 7,000 7.000 F 4,000 U 2.000 u 4.000 F Entertainment Total Fixed Expenses 180,000 5,000 184,000 $170.780 Net Income 121.610 $149.170 U Green Pastures Static Budget Income Statement For the Year Ended December 31, 2017 Master Budget Difference Number of Mares Actual 52 19.000 $380.000 Number of Boarding Days 2.900 21.900 $547,500 Sales $167,500 U Less: Variable Expenses Feed 5.110 F 104,390 58,838 109,500 65,700 Veterinary Fees 8,862 F Blacksmith Fees 4,984 5.475 491 F Supplies 10,178 1,867 F Total Variable Expenses 178,390 201,810 12,045 192,720 354,780 14,330 F 153,170 U Contribution Margin Less: Fixed Expenses Depreciation 40,000 Insurance 40,000 11,000 12,000 11,000 Utilities 14.000 2.000 F1 1,000 F Repairs and Maintenance 11,000 10,000 88,000 Labor 95,000 8,000 Advertisement 12,000 7,000 7.000 F 4,000 U 2.000 u 4.000 F Entertainment Total Fixed Expenses 180,000 5,000 184,000 $170.780 Net Income 121.610 $149.170 U