Snells is a retail department store. The following cost-volume relationships were used in developing a flexible budget for the company for the current year:. Management expected to attain a sales level of $12 million during the current year. At the end of the year, the actual results achieved by the company were as follows:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $10,500,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 6,180,000
Selling and promotion expense . . . . . . . . . . . . . . 1,020,000
Building occupancy expense . . . . . . . . . . . . . . . . 420,000
Buying expense . . . . . . . . . . . . . . . . . . . . . . . . . . 594,000
Delivery expense . . . . . . . . . . . . . . . . . . . . . . . . . 183,000
Credit and collection expense . . . . . . . . . . . . . . . 90,000
Administrative expense . . . . . . . . . . . . . . . . . . . . 564,000
Instructions:
a. Prepare a schedule comparing the actual results with flexible budget amounts developed for the actual sales volume of $10,500,000. Organize your schedule as a partial multiple-step income statement, ending with operating income. Include separate columns for
(1) Flexible budget amounts,
(2) Actual amounts, and
(3) Any amount over (under) budget. Use the cost-volume relationships given in the problem to compute the flexible budget amounts.
b. Write a statement evaluating the company’s performance in relation to the plan reflected in the flexiblebudget.

Explanation:

                                                      Actual                 Flexible      Variance

Net sales                                   $10,500,000   $12,000,000  $1,500,000 U

Cost of goods sold . . . . . . . . . . .    6,180,000      7,062,857        882,857 F

Gross profit                               $4,320,000   $4,937,143        $617,143 U

Selling and promotion expense 1,020,000        1,165,714          145,714 F

Building occupancy expense . . . .420,000        420,000           0

Buying expense . . . . . . . . . . . . . . . 594,000        678,857           84,857 F

Delivery expense . . . . . . . . . . . . . . 183,000         209,143           26,143 F

Credit and collection expense . . . 90,000         102,857           12,857 F

Administrative expense . . . . . . . .564,000       564,000           0

Net Income                              $1,449,000   $1,796,572     $347,572 U

3b. The company did not achieve its sales revenue target with an unfavorable difference of $1,500,000.  This resulted to a gross profit decline of $617,143 and a net income decline of $347,572.  However, it achieved some gains in the cost of goods sold and other expenses, occasioned by the less than expected sales performance.

Explanation:

1. A flexible budget is a budget that changes with respect to the sales volume or level of activity.  It is unlike a static budget which remains the same, no matter the level of activity.

2. Flexible Budget Calculations:

a) Net Sales    $10,500,000

b) Cost of goods sold = $6,180,000/10,500,000 x 12,000,000 = $7,062857

c) Selling & promotion expense = $1,020,000/10,500,000 x 12,000,000 = $1,165,714

d) Building occupancy expense = 420,000  will remain fixed

e) Buying expense = 594,000

/6,180,000 x 7,062,857 = $678,857

f) Delivery expense = 183,000

/10,500,000 x 12,000,000 = $209,143

g) Credit and collection expense = 90,000

/10,500,000 x 12,000,000 = $102,857

h) Administrative expense = 564,000 will remain fixed.

answerinnovative culture;

it established new limitations on use and disclosure for marketing purposes, prohibited selling medical information, expanded individuals’ rights to accessing their own information, and to obtain restrictions from certain disclosures of protected heath information to health plans.