Blue Pastures, Inc. (Home of the Kentucky Breeds) [Flexible Budgeting] The budge

Question

Blue Pastures, Inc. (Home of the Kentucky Breeds) [Flexible Budgeting]

The budget report for 2015 is presented above. As shown, the static income statement budget for the year is based on an expected 21,900 boarding days at $25 per mare. The variable expenses per mare per day were budgeted at: Feed $5.00, Veterinary fees $3.00, Blacksmith fees $0.30, and Supplies $0.40. All other budgeted expenses were fixed.

During the year, management decided not to replace a worker who quit in March, but the firm issued a new advertising brochure and did more entertaining of clients.

Required:

a) Charley Horse, owner of Blue Pastures, has hired you as his manager. He is terribly upset by the farm's decreased profitability and the unfavorable variances he sees when he compares the master budget to actual revenues and costs. What does you think causes the net loss?

BLUE PASTURES (KENTUCKY DERBY BREEDS) Static Budget Income Statement For the Year Ended December 31, 2015 Actual Master Budget (Static) Difference Flexible Budget Difference Number of Mares               52                                          60 8 U                            52 8 U Number of Boarding Days      18,980                                  21,900 2,920 U                    18,980 2920 U Sales    379,600                               547,500 167,900 U                    474,500 94900 U Less: Variable Expenses Feed    104,390                               109,500 5,110 F                    94,900 9490 U Veterinary Fees      58,838                                  65,700 6,862 F                    56,940 1898 U Blacksmith Fees         6,074                                    6,570 496 F                      5,694 380 U Supplies         7,402                                    8,760 1,358 F                      7,592 190 F Total Variable Expenses    176,704                               190,530 13,826 F                  165,126 11578 U Contribution Margin    202,896                               356,970 154,074 U                  309,374 106478 U Less: Fixed Expenses Depreciation      45,000                                  45,000                     -                      45,000                   -   Insurance      11,000                                  11,000                     -                      11,000                   -   Utilities      12,000                                  14,000 2,000 F                    14,000 2,000 F Repairs/maintenance      10,000                                  11,000 1,000 F                    11,000 1,000 F Labor      88,000                                  96,000 8,000 F                    96,000 8,000 F Advertisement      12,000                                    8,000 4,000 F                      8,000 4,000 F Entertainment         7,000                                    5,000 2,000 F                      5,000 2,000 F Total Fixed Expenses    185,000                               190,000 5,000 F                  190,000 5,000 F Net Income      17,896                               166,970 149,074 F                  119,374     (101,478)

Explanation / Answer

There are below case for loss 1 Decrease in Boarding days by (21900-18980)             2,920.0 2 Decrease in price per mare by (25-20)                    5.0 3 Increase in variable Cost per mare (9.31-8.7)                  0.61 Working Decrease in Price (547500/21900-379600/18980) 5 Increase in variable Cost (176704/18980-190530/21900) 0.61

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