Challenge Exercise 24-1

Chapter 24

Challenge Exercise 24-1

Expands on: E24-8

LO 2,3

As sales manager, Bob Levy was given the static budget report shown below for selling expenses in the Clothing Department of Saira Company for the month of October. However, the actual results were missing.

SAIRA COMPANY

Clothing Department

Budget Report

For the Month Ended October 31, 2014

Difference

Favorable F

BudgetActualUnfavorable U

Sales in units7,000 1,000 U

Variable expenses

Sales commissions$ 2,800 $ 200 F

Advertising expense560 10 F

Travel expense2,450 100 F

Free samples given out1,050 50 U

Total variable6,860 260 F

Fixed expenses

Rent1,600–0–

Sales salaries1,400–0–

Office salaries900–0–

Depreciation—autos (sales staff)600–0–

Total fixed4,000–0–

Total expenses$11,360 $ 260 F

As a result of this budget report, Bob was called into the president’s office and congratulated for controlling his costs. He was reprimanded, however, for allowing sales to fall below budget. Bob knew something was wrong with the performance report that he had been given. However, he was not sure what to do, and comes to you for advice.

Instructions

(a) Fill in the missing data in the report above.

(b) Prepare a budget report based on flexible budget data.

Challenge Exercise 24-2

Expands on: E24-14

LO 6, 7

The CampingEquipment Division of Tarkington Company is operated as a profit center. Sales for the division were budgeted for 2014 at $900,000. The only variable costs budgeted for the division were cost of goods sold ($435,000) and selling and administrative ($60,000). Fixed costs were budgeted at $95,000 for cost of goods sold, $85,000 for selling and administrative, and $78,000 for noncontrollable fixed costs. Actual results for these items were:

Sales revenue$850,000

Cost of goods sold

Variable380,000

Fixed100,000

Selling and administrative

Variable62,000

Fixed70,000

Noncontrollable fixed78,000

Instructions

(a) Compute the best measure of a manager’s performance in controlling revenues and costs for both budgeted and actual data.

(b)Assume operating assets were $900,000 and $1,100,000 at the beginning and ending of the year, respectively. Compute the best measure of a manager’s effectiveness in utilizing the assets at his or her disposal using both budgeted and actual data.

(c ) Indicate whether the manager was successful or not according to the results in (a) and (b).