Need help preparing the budget.
T&P Fashion Shops
T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store. T&P headquarters accumulates and analyzes the information for each store and in the aggregate.
Below follows some cost estimates for the Houston store.
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T&P Fashions
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Flexible Budget Information
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Expense
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Fixed
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Variable
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Cost of sales
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$210,000
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40%
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$740,000
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Management
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27,000
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12%
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186,000
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Shop assistants
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162,000
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8%
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268,000
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Rent
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13,200
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5%
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54,450
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Utilities
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34,800
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34,800
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$447,000
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$1,283,250
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Additional information
- The sales forecast for the year is $1,400,000.
- Variable expenses are based on revenues. Do note that percentage clause for rent only kicks in above $500,000 in sales.
- Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses.
- T&P wants to see a flexible budget based on the sales forecast, including estimates for sales being 10% below budget and 10% above budget.
Actual results
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T&P Fashions
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Actual Results from Operations
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Revenues
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$1,325,000
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Cost of sales
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790,000
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Management
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208,000
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Shop assistants
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230,000
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Rent
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58,200
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Utilities
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31,000
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Operating profit
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$7,800
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Required:
Computations (use Excel)
- Prepare a flexible budget in good format.
- Compute the flexible variances and indicate whether favorable or unfavorable.
- Headquarters are contemplating charging each store a 5% marketing expense based on sales. How will that affect the operating profit of the store and the money available for managerial bonuses based on actual results for the past year? Summarize the information in the table.