Mark Fletcher, president of SoftGro, Inc., was looking forward to seeing the performance reports for November because he knew the company's sales for the month had exceeded budget by a considerable margin. SoftGro, a distributor of educational software packages, had been growing steadily for approximately two years. Fletcher's biggest challenge at this point was to ensure that the company did not lose control of expenses during this growth period. When Fletcher received the November reports, he was dismayed to see the large unfavorable variance in the company's Monthly Selling Expense Report that follows. SOFTGRO, INC. Monthly Selling Expense Report For the Month of November Annual November November November Budget Budget Actual Variance Unit sales 2,080,000 296,000 330,000 34,000 Dollar sales $137,280,000 $19,536,000 $21,780,000 $2,244,000 Orders processed 62,400 7,200 6,500 (700) Sales personnel per month 96 (6) Advertising $ 34,800,000 $ 2,900,000 $ 2,922,000 22,000 U Staff salaries 2,880,000 240,000 240,000 Sales salaries 2,052,000 171,000 183,500 12,500 u Commissions 5,491,200 781,440 871,200 89,760 U Per diem expense 3,726,000 310,500 337,000 26,500 U Office expenses 7,636,800 636,400 673,400 37,000 u Shipping expenses 14,076,000 1,909,000 2,069,000 160,000 V Total expenses $ 70,662,000 $ 6,948, 340 $ 7,296,100 $ 347,760 U 90 90 $ Fletcher called in the company's new controller, Susan Porter, to discuss the implications of the variances reported for November and to plan a strategy for improving performance. Porter suggested that the company's reporting format might not be giving Fletcher a true picture of the company's operations. She proposed that SoftGro implement flexible budgeting. Porter offered to redo the Monthly Selling Expense Report for November using flexible budgeting so that Fletcher could compare the two reports and see the advantages of flexible budgeting. Porter discovered the following information about the behavior of SoftGro's selling expenses. The total compensation paid to the sales force consists of a monthly base salary and a commission; the commission varies with sales dollars. Sales office expense is a semivariable cost with the variable portion related to the number of orders processed. The fixed portion of office expense is $5,640,000 annually and is incurred uniformly throughout the year. Subsequent to the adoption of the annual budget for the current year, SoftGro decided to open a new sales territory. As a consequence, approval was given to hire six additional salespeople effective November 1. Porter decided that these additional six people should be recognized in her revised report. Per diem reimbursement to the sales force, while a fixed amount per day, is variable with the number of sales personnel and the number of days spent traveling. SoftGro's original budget was based on an average sales force of 90 people throughout the year with each salesperson traveling 15 days per month. The company's shipping expense is a semivariable cost with the variable portion, $6.00 per unit, dependent on the number of units sold. The fixed portion is incurred uniformly throughout the year. Prepare a revised Monthly Selling Expense Report for November that would permit Mark Fletcher to more clearly evaluate SoftGro's control over selling expenses. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "o" for no effect (i.e., zero variance). Do not round intermediate calculations.) SOFTGRO, INC. Revised Monthly Selling Expense Report for November Flexible Budget Actual Variance Total expenses S 0 S
