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 semi-fixed or fixed.

Green Pastures

Static Budget Income Statement

For the Year Ended December 31, 2017

ActualMaster BudgetDifference

Number of Mares5260 8 U

Number of Boarding Days19,00021,9002,900 U

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

Less:Variable Expenses

Feed104,390 109,5005,110 F

Veterinary Fees58,83865,7006,862 F

Blacksmith Fees4,9845,475491 F

Supplies10,17812,0451,867 F

Total Variable Expenses178,390 192,72014,330 F

Contribution Margin201,610 354,780 153,170 U

Less:Fixed Expenses

Depreciation40,00040,000-0-

Insurance11,00011,000-0-

Utilities12,00014,0002,000 F

Repairs and Maintenance 10,00011,0001,000 F

Labor88,00095,0007,000 F

Advertisement12,0008,0004,000 U

Entertainment7,0005,0002,000 U

Total Fixed Expenses180,000 184,0004,000 F

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

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.

include a 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 perform good, average, or poor job of controlling expenses?
• Were management's decisions to stay competitive sound?
• include 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 perform 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?