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.

Writea minimum 700-word examination of the financial statements and include the following:

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

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Green Pastures

Static Budget Income Statement

For the Year Ended December 31, 2017

ActualMaster BudgetDifference

Number of Mares 5260 8 U

Number of Boarding Days 19,000 21,900 2,900 U

Sales $380,000 $547,500 $167,500 U

Less:Variable Expenses

Feed 104,390 109,5005,110 F

Veterinary Fees 58,83865,700 6,862 F

Blacksmith Fees 4,9845,475 491 F

Supplies 10,17812,045 1,867 F

Total Variable Expenses178,390 192,720 14,330 F

Contribution Margin 201,610 354,780 153,170 U

Less:Fixed Expenses

Depreciation 40,00040,000 -0-

Insurance 11,00011,000 -0-

Utilities 12,00014,0002,000 F

Repairs and Maintenance 10,00011,0001,000 F

Labor 88,00095,000 7,000 F

Advertisement 12,0008,000 4,000 U

Entertainment 7,0005,000 2,000 U

Total Fixed Expenses 180,000 184,0004,000 F

Net Income$21,610$170,780$149,170 U

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