The purpose of this assignment is to evaluate and prepare a budget.

1. Download the Excel file provided.

2. Read the instructions tab.

3. Complete the Budget and Variance Analysis tab.

General Instructions: Download the Excel file provided. Your responsibility is to, in part, prepare the 2020 budget using prior year data and the information included with the instructions tab.

1. Actual column: compute the break even in units and dollars. Compute the margin of safety.

2. Flexible Budget column: Complete the 2020 Flexible Budget column incorporated with the budget and variance analysis tab. The flexible budget includes several changes to the data. The changes are listed in the Excel file / Instructions Tab.

2a. Compute variances.

2b. Explain the variances.

2c. Compute the break even in units and dollars.

2d. Compute the margin of safety.

The format used is a variable costing income statement.

If you zoom in on your screen, this should be clear.

Instructions: Use Excel formulas in all applicable cells. Actual Column 1 Column F, rows 50-56. Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety. Flexible Budget Column 3 1 Prepare a flexible budget using estimated annual unit sales = 3,500. Enter volume in the Budget and Variance Analysis tab, column H, row 4. Enter all other data and calculations in the appropriate cells (column H). 2 The company adopted the accrual method of accounting in 2019. The cumulative affect of change in accounting principle, net of tax, equal to $35K was recorded with their GAAP based financial statements. The company purchased equipment equal to $20,000. Terms: 5 year loan with an interest rate equal to 4.8% and $5,000 cash down payment. Depreciation: Straight-line method, 5 year useful life, no residual value. 4 Increase the average animal fee by 1.75% for the first five months and 2.85% for the remaining seven months of the year. 5 The owner's sister is stationed in Europe with the military and wants to open another location or help with animal training for the military after she transitions to civilian life. Estimated start-up costs are $25K. She doesn't know if this will occur nor is the owner definitively planning for this option. 6 The owner is evaluating regional competitors for a potential business acquisition. Approximately $5,000 will be invested with a third party search firm in 2020. 7 Excess cash was invested in an S&P 500 Index fund with estimated annual capital gain and dividend income equal to $11,000. 8 The company sold grooming equipment for a $500 dollar gain. However, the equipment is not expected to be delivered to the buyer nor will the owner receive payment. 9 The company is diversifying into animal training and recorded unearned income in 2019 equal to $175,000 for cash advances from the U.S. government. The company expects to train several animals for special operation forces in 2020. Earned income is estimated to be $125,000. 10 Increase the variable cost per unit (animal) by 2.75%. This applies to all variable cost categories (excluding advertising, bedding, and specialty food). 11 The driver for bedding and specialty food is the number of non-traditional animals. The company expect 320 animals per year at an average cost of $1.75 per animal for bedding and $1.35 per animal for specialty food. 12 The company plans to relocate the business. This may increase rent by $750. 13 The company uses a dated advertising program including the yellow pages and billboard signs. The company plans to reduce costs and increase effectiveness by investing in an online campaign. The cost structure changes to a mixed cost and includes $1200 fixed plus variable costs. The variable cost is equal to .05 per online view plus $4.00 for appointments scheduled online. The company expects 1,550 views and 225 scheduled appointments. 14 Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety. Enter the information in the Budget and Variance Analysis tab, rows 50-56. 15 Use formulas to compute variances and explain why the variances are positive or negative. Enter formulas in the Budget and Variance Analysis tab column J. Write your explanations in column L. 2020 Annual Budget and Variance Analysis Annual Sales Volume (units) 2800 Enter sales volume in colum H, row 4. Per Flexible Budget Unit Actual Variance Variance Explanation 39.5 110,600 Sales Investment Income Gain-Sale of Equipment Military training - special operations Total Income 110,600 0.07 2.75 3.75 1.25 Less: Variable Expenses Rewards Feed Veterinary Fees Labor Supplies Contractors Advertisement Bedding Specialty Food 196 7,700 10,500 3,500 5,040 2,520 1.80 0.90 Total Variable Expenses 29,456 Contribution Margin 81,144 2020 Annual Budget and Variance Analysis Annual Sales Volume (units) 2800 Enter sales volume in colum H, row 4. Per Flexible Budget Unit Actual Variance Variance Explanation Less: Fixed Expense 350 780 435 5,675 Lease Depreciation Intere & Penalties Insurance Acquisition Rent Advertisement Repairs & Maintenance Entertainment SG&A Utilities Taxes 6,700 4,700 3,460 4,075 2,300 3,450 5,800 Total Fixed Expense 37,725 Net Income (Loss) 43,419 Break Even (Units) Break Even (Dollars) Margin of Safety (Dollars) Instructions: Use Excel formulas in all applicable cells. Actual Column 1 Column F, rows 50-56. Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety. Flexible Budget Column 3 1 Prepare a flexible budget using estimated annual unit sales = 3,500. Enter volume in the Budget and Variance Analysis tab, column H, row 4. Enter all other data and calculations in the appropriate cells (column H). 2 The company adopted the accrual method of accounting in 2019. The cumulative affect of change in accounting principle, net of tax, equal to $35K was recorded with their GAAP based financial statements. The company purchased equipment equal to $20,000. Terms: 5 year loan with an interest rate equal to 4.8% and $5,000 cash down payment. Depreciation: Straight-line method, 5 year useful life, no residual value. 4 Increase the average animal fee by 1.75% for the first five months and 2.85% for the remaining seven months of the year. 5 The owner's sister is stationed in Europe with the military and wants to open another location or help with animal training for the military after she transitions to civilian life. Estimated start-up costs are $25K. She doesn't know if this will occur nor is the owner definitively planning for this option. 6 The owner is evaluating regional competitors for a potential business acquisition. Approximately $5,000 will be invested with a third party search firm in 2020. 7 Excess cash was invested in an S&P 500 Index fund with estimated annual capital gain and dividend income equal to $11,000. 8 The company sold grooming equipment for a $500 dollar gain. However, the equipment is not expected to be delivered to the buyer nor will the owner receive payment. 9 The company is diversifying into animal training and recorded unearned income in 2019 equal to $175,000 for cash advances from the U.S. government. The company expects to train several animals for special operation forces in 2020. Earned income is estimated to be $125,000. 10 Increase the variable cost per unit (animal) by 2.75%. This applies to all variable cost categories (excluding advertising, bedding, and specialty food). 11 The driver for bedding and specialty food is the number of non-traditional animals. The company expect 320 animals per year at an average cost of $1.75 per animal for bedding and $1.35 per animal for specialty food. 12 The company plans to relocate the business. This may increase rent by $750. 13 The company uses a dated advertising program including the yellow pages and billboard signs. The company plans to reduce costs and increase effectiveness by investing in an online campaign. The cost structure changes to a mixed cost and includes $1200 fixed plus variable costs. The variable cost is equal to .05 per online view plus $4.00 for appointments scheduled online. The company expects 1,550 views and 225 scheduled appointments. 14 Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety. Enter the information in the Budget and Variance Analysis tab, rows 50-56. 15 Use formulas to compute variances and explain why the variances are positive or negative. Enter formulas in the Budget and Variance Analysis tab column J. Write your explanations in column L. 2020 Annual Budget and Variance Analysis Annual Sales Volume (units) 2800 Enter sales volume in colum H, row 4. Per Flexible Budget Unit Actual Variance Variance Explanation 39.5 110,600 Sales Investment Income Gain-Sale of Equipment Military training - special operations Total Income 110,600 0.07 2.75 3.75 1.25 Less: Variable Expenses Rewards Feed Veterinary Fees Labor Supplies Contractors Advertisement Bedding Specialty Food 196 7,700 10,500 3,500 5,040 2,520 1.80 0.90 Total Variable Expenses 29,456 Contribution Margin 81,144 2020 Annual Budget and Variance Analysis Annual Sales Volume (units) 2800 Enter sales volume in colum H, row 4. Per Flexible Budget Unit Actual Variance Variance Explanation Less: Fixed Expense 350 780 435 5,675 Lease Depreciation Intere & Penalties Insurance Acquisition Rent Advertisement Repairs & Maintenance Entertainment SG&A Utilities Taxes 6,700 4,700 3,460 4,075 2,300 3,450 5,800 Total Fixed Expense 37,725 Net Income (Loss) 43,419 Break Even (Units) Break Even (Dollars) Margin of Safety (Dollars)