Tyrone Fletcher, president of SoftGro, Incorporated, was looking forward to seeing the performance reports for November because he knew the companys 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. Fletchers 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 companys Monthly Selling Expense Report that follows. SOFTGRO, INCORPORATED Monthly Selling Expense Report For the Month of November Annual Budget November Budget November Actual November Variance Unit sales 2,008,500 288,500 318,840 30,340 Dollar sales $ 80,340,000 $ 11,540,000 $ 12,753,600 $ 1,213,600 Orders processed 56,040 6,670 6,140 (530) Sales personnel per month 90 90 96 6 Advertising $ 20,208,000 $ 1,684,000 $ 1,697,400 $ 13,400 U Staff salaries 1,540,800 128,400 128,400 0 Sales salaries 1,336,800 111,400 123,900 12,500 U Commissions 3,213,600 461,600 504,500 42,900 U Per diem expense 1,822,800 151,900 165,740 13,840 U Sales office expense 4,375,800 404,650 380,500 24,150 F Shipping expenses 6,785,700 928,850 1,000,300 71,450 U Total expenses $ 39,283,500 $ 3,870,800 $ 4,000,740 $ 301,200 U Fletcher called in the companys 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 companys reporting format might not be giving Fletcher a true picture of the companys 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 SoftGros 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 $3,255,000 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. SoftGros original budget was based on an average sales force of 90 people throughout the year with each salesperson traveling 15 days per month. Actual travel days per salesperson in November were equal to the 15 days budgeted. The companys shipping expense is a semivariable cost with the variable portion, $3.00 per unit, dependent on the number of units sold. The fixed portion is incurred uniformly throughout the year. Required: Why would Susan Porter propose that SoftGro use flexible budgeting in this situation? Prepare a revised Monthly Selling Expense Report for November that would permit Tyrone Fletcher to more clearly evaluate SoftGros control over selling expenses.

Prepare a revised Monthly Selling Expense Report for November that would permit Tyrone Fletcher to more clearly evaluate SoftGro's control over selling expenses. Note: Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations