As sales manager, Hank Short was given the following static budget report for se
ID: 2461184 • Letter: A
Question
As sales manager, Hank Short was given the following static budget report for selling expenses in the Winter Sports Department of Jennings Outdoor Company for the month of November.
*The increase in depreciation was due to a new vehicle that had to be purchased as a result of an accident driving on snowy roads on the way to visit a customer.
As a result of this budget report, Hank was called into the president’s office and congratulated on his fine sales performance. He was reprimanded, however, for allowing his costs to get out of control. Hank 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- Prepare a budget report based on flexible budget data to help Hank.
b- Should Hank have been reprimanded? Explain.
c- After Hank because familiar with the flexible budget report, he began to analyze the numbers. Hank feels that sales can be increased if Jennings Outdoor Company would increase sales commissions to $31 per unit. This would allow them to reduce advertising expense to $8.00 per unit. Hank thinks that these changes will motivate the sales staff to sell at least 5,500 units. He is allowed to try his plan in December and had the following results.
Prepare a budget report based on flexible budget data. The new depreciation amount has been included in the budgeted fixed costs. Do you think the new plan is valid? Explain.
Explanation / Answer
Yes, Hank should be reprimanded as the budget he draws is based on the sale of 4000 units. As the sale units goes higher, variable cost per unit for sale should also go alongwith the sale nos.
As seen above in flexible budget, all the cost center shows the favourable variance.
3)
Flexible Budget (w.r.t 4600 units) Actual Budget Remarks Units sold 4600 4600 Variable Expenses Sale commission 128000 138000 F Advertising expense 41250 43700 F Travel expense 202125 212750 F Demo models given out 90750 115000 F 462125 509450 Fixed Expense Rent 7500 7500 Sales salaries 60000 60000 Office salaries 40000 40000 Depreciation 3000 2500 U 110500 110000 Total Expenses 572625 619450 FRelated Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.