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General Instructions: Download the Excel file provided. Your responsibility is to do the following.

1. Use 2019 actual data to complete the 2019 Actual column incorporated with the budget and variance analysis tab.

2. Complete the 2020 Flexible Budget column incorporated with the budget and variance analysis tab. The flexible budget includes several changes to the data. The changes are listed in the Excel file / Instructions Tab.

3. Compute variances.

4. Explain the variances.

5. Compute the break-even in units and dollars.

6. Compute the margin of safety.

The format used is a variable costing income statement.

Excel: In order to minimize errors, improve accuracy, and increase efficiency use formulas in all cells. If you need assistance with Excel review the week one questions thread. Included therein are three options to help you advance your Excel skills. Two links at the bottom are titled “Formula Overview” and “Excel - Basic Math”. The third option is Excel Essential Training (week one learning activities). The tutorials will help you with, in part, formulas and spreadsheet format.

Video: In order to gain experience and insight please review the following video. It is a simple presentation and will help everyone develop a basic understanding of flexible budgets. The video was created by a third party. There are additional videos included with the Bing search as well.

Flexible Budget Example

Flexible Budget Guidance: For additional information regarding flexible budgets please review the following.

What is a flexible budget?

Based on the example, fixed expenses do not change with volume. Contrary, variable expenses change with volume. With respect to the case study, the same principles apply. The only difference is that our variable expenses will change based on sales volume instead of machine-hours.

Example:

Sales Volume 2,640

Feed cost per animal 3.13

Total feed cost = 2,640*3.13=8,263

Advertisement, Bedding and Specialty Food Expense: Advertisement is a fixed expense at the 2,640 volume level (column F). As a result, column F, row 19 is equal to -0-. However, the expense is considered a mixed cost (fixed and variable) with the flexible budget (column H). Bedding and specialty food does not apply to the prior year income statement (column F). As a result, column F rows 20 and 21 is equal to -0-. For further clarification, my suggestion is to read the instructions tab.

Variance and Variance Explanation: A variance is the difference between two numbers. From a budget perspective, we compare actual business results to our budget. Material deviations are analyzed to help us plan, in part, cash flow, revenue projections, expense levels, and to make informed business decisions.

Calculate the variance for all items listed on the spreadsheet (i.e. sales, all variable and fixed expenses, contribution margin, net income, and the break-even computation).

Column J: Enter the difference between actual results and the budget.