Montana Farm is a 400-acre farm on the outskirts of San Bernardino Plains, one of the major suppliers free range eggs in the country. A recent breakout of bird flu in the Asia pacific region has affected the industry amid health concerns which has led to a decline with the demand, and it has made the business extremely competitive. To meet the competition, Montana Farm planned in 2017 to advertise more extensively, boost health of laying hens with regular monitoring of veterinary specialists and sourcing grain from trusted suppliers. The budget report for 2017 is presented below. As shown, the static income statement budget for the year is based on an expected 69,000 laying hens producing 568,100 dozen of eggs at $3.95 per dozen. The variable expenses were budgeted as follows: Per laying hen: feed $1.05, nutrition $0.12, supplies $0.06 Per dozen eggs produced: delivery $0.30 All other budgeted expenses were either fixed or mixed expenses. During the year, management decided not to replace a farm hand who quit in March, but it did issue a new advertising brochure and paid for more promotion and advertising. MONTANA FARM Static Budget Income Statement For the Year Ended December 31, 2017 Actual Master Budget Difference Number of laying hens 65,423 69,000 3,577 U Number of dozen eggs produced 510,299 568,100 Sales $1,939,138 $2,243,995 304,857 U Less: Variable expenses Feed 840,031 869,400 29,369 F Nutrition 109,911 99,360 10,551 U Supplies 62,806 45,540 17,266 U Delivery expenses 153,090 170,430 17,340 F Total variable expenses 1,165,838 1,184,730 18,892 F Contribution margin 773,300 1,059,265 285,965 U Less: Fixed expenses Depreciation 60,000 60,000 0 F Insurance 69,000 69,000 0 F Utilities 62,000 58,000 4,000 U Repairs and maintenance 30,000 25,000 5,000 U Salary and wages 216,000 230,000 14,000 F Delivery expenses 0 F Veterinary fees 87,000 75,900 11,100 U Advertisement 120,000 105,000 15,000 U Entertainment 7,000 5,000 2,000 U Total fixed expenses 651,000 627,900 23,100 U Net income 122,300 431,365 309,065 U ) Based on the static budget report: 1. What was the primary cause(s) of the loss in net income? 2. Did management do a good, average, or poor job of controlling expenses? 3. Were management's decisions to stay competitive sound? (b) Prepare a flexible budget report for the year. (c) Based on the flexible budget report, answer the three questions in part a above. (d) What course of action do you recommend for the management of Montana