Question 11 Green Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass, specializing in the boarding of broodmares and their foals. A recent economic downturn in the thoroughbred industry has made the boarding business extremely competitive. To meet the competition, Green Pastures planned in 2020 to entertain clients, advertise more extensively, and absorb expenses formerly paid by clients such as veterinary and blacksmith fees. The budget report for 2020 follows. As shown, the static income statement budget for the year is based on an expected 26,300 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 semifixed or fixed. During the year, management decided not to replace a worker who quit in March, but it did issue a new advertising brochure and did more entertaining of clients. GREEN PASTURES Static Budget Income Statement For the Year Ended December 31, 2020 Actual Master Budget Difference Number of mares 52 60 8 Unfavorable Number of boarding days 22,800 26,300 3,500 Unfavorable Sales $456,000 $657,500 $ 201,500 Unfavorable Less: Variable expenses Feed 125,270 131,500 6,230 Favorable Veterinary fees 70,606 78,900 8,294 Favorable Blacksmith fees 5,981 6,575 594 Favorable Supplies 12,214 14,465 2,251 Favorable Total variable expenses 214,071 231,440 17,369 Favorable Contribution margin 241,929 426,060 184,131 Unfavorable Less: Fixed expenses Depreciation 48,000 48,000 -0- Insurance 13,000 13,000 -0- Utilities 14,000 17,000 3,000 Favorable Repairs and maintenance 12,000 13,000 1,000 Favorable Labor 106,000 114,000 8,000 Favorable Advertisement 14,000 10,000 4,000 Unfavorable Entertainment 8,000 6,000 2,000 Unfavorable Total fixed expenses 215,000 221,000 6,000 Favorable Net income $26,929 $ 205,060 $178,131 Unfavorable Instructions With the class divided into groups, answer the following. (a) Based on the static budget report: (i) What was the primary cause(s) of the decline in net income? (ii) Did management do a good, average, or poor job of controlling expenses? (iii) 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 Green Pastures