Essay about Case 14-1: Pet Groom & Clean (Pg&C)

To gain further insight, we subdivide the flexible budget variance for direct cost inputs into more detailed variances as following:

Another concern identified, is the utilities expense budget for utilities in Year 9 which is $150,000. This amount is identified as a fixed amount and is unrelated to actually production activities and manufacturing efficiency. Considering that production levels and activity fluctuates throughout the year, the budget for utilities should be a variable item. An example; from Year 7 to Year 8, the utilities expenses increase by $15,000 and with this detection, ways to reduce this expense should be investigate. Another concern is a duplicated line item under the Selling, General, and Administrative Budget for Utilities and Utilities and Services. Another issue for concern, Total Variable Cost was reported to be lower; however was not enough for the lack of sales combined with an increase in advertising and transportation which resulted in an overall negative result. The low Net Sales directly impacted the Contribution Margin which decreased by $49,397. Overall, these concerns indicate the need for a flexible budget with variance analysis.

A market failure that could exist is the absence of private property rights, since the dog

Working on the budget for Peyton Approved is the budget variance was also prepared on the company behalf. By using this variance this gives the difference between actual cost and the budgeted amount. With that in mind if the variance increases the operating cost, is then labeled as favorable. On the other hand, if the variances decrease

Recently an operating budget was created for Peyton Approved, a pet supplies manufacturer. The company’s operating budget is a projected forecast for the quarter July through September 2015. The budget includes specific calculations of the sales, production, manufacturing (raw materials, direct labor, and factory overhead), selling, and general and administrative operations. After actual activity was recorded and compared to the operating budget for Peyton Approved, variances were found that caused unfavorable results in the company’s total direct labor and total direct materials accounts. These variances need to be analyzed and investigated so corrective actions can be taken.

The operating budget and variance analysis for a company like Peyton Advance are important tools for financial stability. A company will use these tools as a basis for deciding what will be appropriate actions to take for each quarter and to help forecast the future. Both tools are used for communication of corporate goals, warning signs of potential problems, coordination between departments and products, and evaluation of performance of employees. The operating budget and variance analysis for Peyton Approved shows the areas that are working for the company and the areas that need improvement.

Home Depot is a major company that is in the construction and home improvement business. When the housing market took a turn for the worse, the revenue was 3 percent lower in 2006 and 21 percent lower in 2007. The accounting concept that is used for Home Depot is operating leverage. According to Lev (1974), a firm's operating leverage is defined as the ratio of the fixed to variable operating costs (p. 627). When the operating leverage is high, the fixed cost is higher than the variable costs (Edmonds, Tsay & Olds, 2011). The 3 percent decline in sales activity is caused by the 3 percent decline in variable costs for Home Depot. The variable cost changed because the fixed cost remains the same event if there is a changed in sales. The decline

ABSTRACT: This case1 provides an opportunity to study budgets, budget variances, and performance evaluation at several levels. As a purely mechanical problem, the case asks for calculations of various price, efficiency, spending, and volume variances from a set of budgets and actual results. The case is also an interpretive exercise. After the variances have been computed, the next step is to develop plausible conjectures about their likely causes. Finally, it is a case about performance evaluation and responsibility accounting. The company has an incentive plan, based on the budget

A flexible budget is a budget designed to identify what resources will be required to reach a predetermine result. Comparing it to the company's master budget to identify any differences in sales or spending. Examining the differences can reveal causal factors for an underperforming budget. (Elmerraji, 2007)

Question 1) There is some uncertain information to say that the 2004 promotion profitable. Firstly, both Brown and Janus, the consultant, calculated the variable cost by using two ways. The consultant added all expenses which have administrative cost, manufacturing overhead, advertising / promotion expense, selling expense and direct labor and raw material cost. On the other hand, Brown added only direct labor and raw material cost as a variable cost. Moreover, both of them found the sales without promotion differently. Janus worked with several companies by using a computer-generated model to forecast the number of sales without promotion,

In the example it is futile to compare the actual variable costs with the budget. To do so suggests that the manager is doing better than budget, but actual volume is below budget so costs should be lower. It is vital to produce a revised budget to use for comparison. This does not mean that the original budget is useless. It merely means that in order to analyse the 15 difference it is important to start by removing the impact of volume changes on the various headings which are affected by it.

Companies will have set guidelines to trigger the need for a variance report such as variances over a specific percentage or dollar amount. (Cleverly, Song, & Cleverly, 2011, Pg. 381) In an analysis of revenues, a negative variation is unfavorable; in an analysis of costs, a negative variation is favorable. (Dove & Forthman, 1995) Variation is calculated by subtracting the expected or budgeted figure from the actual figure for each variable. The variable figure is then divided by the expected figure in order to establish a percentage of the variance. Wages that are over the budgeted amount would be an unfavorable variance and would be an indication that there is a need for a variance report. (Dove & Forthman, 1995) Supply costs being less than the budgeted amount would be a favorable variance, however it could result in the supplies budget being reduced if there is not a reasonable explanation as to the cause for the variance. Therefore, a variable department manager would ask for a variance report detailing the reason for the variance to be completed, otherwise it appears as if the budget is overstated and needs to be reduced.

In this memo, the owner of the Juniper Café; concludes that cutting hours is the “best strategy for us to save money and remain in business without having to eliminate jobs.” While the café ’s employees are undoubtedly grateful for the intent of the memo, they may see that its logic is flawed. First, the memo does not provide enough supporting evidence to prove that the money saved by cutting hours would exceed the money lost by losing early-morning and weekend clients. Second, the owner does not seem to evaluate other options that would either cut back on overhead or change the café’s operation to bring in more revenue.

This paper will describe the differences between static and flexible budgets. Budgeting is a key component of financial management in any business. The most traditional form of budget is the static budget, which is one "that incorporates values about inputs and outputs that are conceived before the period in question begins" (Investopedia, 2012). This concept will be contrasted with a flexible budget. This technique allows for the values of inputs and outputs to be changed at any point, or at multiple points, during the period in question. The company would normally make such a change whenever it is realized that the change is needed. A new price from a supplier, for example, could be reflected immediately in a flexible budget, rather than at the end of the period. This and other differences between the two types of budget will be outlined in the course of this paper. The first section will explain the relationship between fixed and variable costs in a flexible budget. The second section will discuss the differences between static and flexible budgets. The third section will explain how flexible budgets can assist with cost-volume-profit (CVP) analysis.

There are different costs that respond to the different activities like variable costs are directly associated with the products sold. The cost behavior patterns of selling, general, administrative, and other operating expenses are determined, and these expenses are budgeted accordingly. For example, sales commissions will be a function of the forecast of either sales dollars or units. The historical pattern of some expenses will be affected by changes in strategy that management may plan for the budget period. In a participative budgeting system, the manager of each department or cost responsibility center will submit the anticipated cost of the department 's planned activities, along with descriptions of the activities and explanations of significant differences from past experience. After review by higher levels of management, and perhaps negotiation, a final budget will be established. Because of the necessity to recognize cost behavior patterns for planning and control purposes, overhead costs will be classified as variable or fixed.