Cadiz Co. uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $300,000 to $360,000. Variable costs and their percentage relationships to sales are: Sales commissions 5% Advertising 4% Traveling 7% Delivery 1% Fixed selling expenses consist of sales salaries $40,000 and depreciation on delivery equipment $10,000. The actual selling expenses incurred in February, 2019, by Cadiz are as follows: Sales commissions $17,200 Advertising 12,000 Traveling 23,700 Delivery 2,400 Fixed selling expenses consist of sales salaries $41,500 and depreciation on delivery equipment $10,000. Prepare a flexible budget performance report, assuming that February sales were $330,000.

Cadiz Co.

Flexible Budget Performance Report:

                                                       Budget

                                       Flexible            Actual       Variance

Sales                             $330,000       $330,000        $0

Variable costs:

Sales commissions           16,500            17,200         700  U

Advertising                        13,200            12,000      1,200  F

Traveling                           23,100            23,700        600  U

Delivery                              3,300             2,400         900  F

Fixed selling expenses:

Sales Salaries                  40,000           41,500       1,500  U

Depreciation: delivery     10,000           10,000         0       None

Total                                                                            700  U

Explanation:

a) Data:

                                                       Budget

                                          Static            Actual             Variance

Sales                             $360,000       $330,000      $30,000  U

Variable costs:

Sales commissions           18,500            17,200             1,300  F

Advertising                        14,400            12,000            2,400  F

Traveling                          25,200           23,700             1,500  F

Delivery                              3,600             2,400             1,200  F

Fixed selling expenses:

Sales Salaries                  40,000           41,500             1,500  U

Depreciation: delivery     10,000           10,000                 0     None

b) Flexible Variable Expenses:

Sales commission = 5% of $330,000 = $16,500

Advertising =  4% of $330,000 = $13,200

Traveling = 7% of $330,000 = $23,100

Delivery = 1% of $330,000 = $3,300

c) Cadiz Co.'s flexible budget changes with respect to the volume of sales.  Since some percentages of the sales are given for Sales commission, advertising, traveling, and delivery, these change as the volume of sales changes.  This flexible budget forms the basis for the management of Cadiz Co. to judge the actual performance with the budget, which enables control to be instituted.

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