P 614: New York Fashions

New York Fashions owns 87 womens clothing stores in shopping malls. Corporate headquarters of New York Fashions uses flexible budgets to control the operations of each of the stores. The following table presents the August flexible budget for the New York Fashions store located in the Crystal Lakes Mall:

NEW YORK FASHIONSCRYSTAL LAKES MALL STORE

Flexible Budget August

Expense	Fixed	Variable
Cost of goods sold		45%
Management	$ 7,000	1
Salespersons	2,000	8
Rent	12,000	5
Utilities	900
Other	1,500

Variable costs are based on a percentage of revenues.

Required:

1. Revenues for August were $80,000. Calculate budgeted profits for August.

2. Actual results for August are summarized in the following table:

NEW YORK FASHIONSCRYSTAL LAKES MALL STORE

Actual Results from Operations August

Revenues	$ 80,000
Cost of goods sold	38,000
Management	7,600
Salespersons	9,800
Rent	16,000
Utilities	875
Other	1,400

Prepare a report for the New York FashionsCrystal Lakes Mall store for the month of August comparing actual results to the budget.

3. Analyze the performance of the Crystal Lakes Mall store in August.

4. How does a flexible budget change the incentives of managers held responsible for meeting the flexible budget as compared to the incentives created by meeting a static (fixed) budget?