Question
GreenAcres is a 400-acre farm on the outskirts of the Kentucky Greengrass,which specializesin the boarding of broodmares and babies. A recent economic downturn in the
GreenAcres is a 400-acre farm on the outskirts of the Kentucky Greengrass,which specializesin the boarding of broodmares and babies. A recent economic downturn in the thoroughbred industry hascaused adecline in breeding, and it has made the boarding businessvery competitive. To meet the competition, GreenAcres planned in 2017 to entertain clients, advertiseextensively, and absorb expensesthat were previouslypaid by clients such as veterinary and blacksmith fees. The budget report for 2017 isattached. 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.
During the year, management decided against replacing a worker who quit in March, but it did issue a new advertising brochure and did more entertaining of clients.
Write a 400 word analysis (with one reference, no limit on length of reference please include url of reference in doc):
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?
Number of Mares Number of Boarding Days Sales Less: Variable Expenses Feed Veterinary Fees Blacksmith Fees Supplies Total Variable Expenses Contribution Margin Less: Fixed Expenses Depreciation Insurance Utilities Repairs and Maintenance Labor Advertisement Entertainment Total Fixed Expenses Net Income Actual 52 19,000 $380,000 Master Budget 60 21,900 $547,500 104,390 58,838 4,984 10,178 178,390 201,610 109,500 65,700 5,475 12,045 192,720 354,780 40,000 11,000 12,000 10,000 88,000 12,000 7,000 180,000 $21,610 40,000 11,000 14,000 11,000 95,000 8,000 5,000 184,000 $170,780 Difference 8U 2,900 U $167,500 U 5,110 F 6,862 F 491 F 1,867 F 14,330 F 153,170 U -0-02,000 F 1,000 F 7,000 F 4,000 U 2,000 U 4,000 F $149,170 UStep by Step Solution
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