Managers and auditors always analyze the variances between actual and budget. Say you were auditing this client and they gave you the following story (below). Is the story consistent with the overall pattern of variances? Which elements of the story are consistent with the explanations? Which variances are inconsistent, or left unexplained? Be sure to analyze every line item on the budget.

Client Story: In order to motivate our sales force to increase sales, we decided to increase our commissions and salaries and increase marketing. At the same time, our supplier increased its prices, and we felt we could pass that cost increase on to our customers in the form of a price increase. However, with the additional pressure to make sales, coupled with the increased sales price, we had to loosen credit terms on sales (extend more credit to more customers). We also had to lease a little more distribution space and acquire another truck to handle the volume increase. Our shipping expense relates to gasoline used for deliveries. Luckily, gas prices went down from what we originally expected this year.

In the table below, classify each account on the budget according to whether the variances in the performance report are consistent, inconsistent, or left unexplained by the clients story. Place an X in the appropriate column.

Income Statement line item	Consistent	Inconsistent	Unexplained
All sales volume variances
Flexible budget variances:
Sales Revenue
Cost of Goods sold
Commission expense
Shipping Expenses
Bad debt expense
Salaries expense
Lease of distribution center
Depreciation of fleet & Equip.
Advertising expense
Ofice rent, phone, internet