T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store. T&P headquarters accumulates and analyzes the information for each store and in the aggregate.
Below follows some cost estimates for the Houston store.

Additional information
The sales forecast for the year is $1,400,000.
Variable expenses are based on revenues. Do note that percentage clause for rent only kicks in above $500,000 in sales.
Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses.
T&P wants to see a flexible budget based on the sales forecast, including estimates for sales being 10% below budget and 10% above budget.
Actual results
T&P Fashions
Actual Results from Operations
Revenues...................................$1,325,000
Cost of sales...................................790,000
Management...................................208,000
Shop assistants................................230,000
Rent.............................................58,200
Utilities..........................................31,000
Operating profit................................$7,800
Required:
Computations (use Excel)
Prepare a flexible budget in good format.
Compute the flexible variances and indicate whether favorable or unfavorable.
Headquarters are contemplating charging each store a 5% marketing expense based on sales. How will that affect the operating profit of the store and the money available for managerial bonuses based on actual results for the past year? Summarize the information in the table.
Explain to the division manager the flexible budget variances; how to interpret the information; and what action, if any to take. Comment on the 5% marketing proposal too

Transcribed Image Text:

T&P Fashions Flexible Budget Information Fixed Expense Variable Cost of sales $210,000 40% $740,000 27,000 Management 12% 186,000 Shop assistants 8% 162,000 268,000 Rent 13,200 5% 54,450 34,800 Utilities 34,800 $447,000 $1,283,250