# VARIANCE ANALYSIS | Business and Finance homework help

Accounting for Decision Making

Module 4 Case

BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS

Assignment Overview

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 is the forecast (budgeted income statement) for the Houston store showing the breakdown of fixed and variable expenses in columns two through four. The last column shows the actual results.

 T&P Fashions – Houston Store Breakdown of Expenses (Forecast) Actual Results Forecast Fixed Variable Totals (Compute fixed and variable portion based on  forecast data) Revenues \$1,520,000 \$1,360,000 Cost of Sales 790,000 790,000 760,000 Gross Profit 730,000 \$600,000 Management 182,000 154,700 27,300 182,000 Shop assistants 258,000 154,800 103,200 242,000 Rent 19,640 15,000 4,640 22,000 Utilities 34,800 34,800 31,000 Misc. expenses 24,500 12,250 12,250 29,000 Total expenses \$518,940 506,000 Net income \$211,060 \$94,000

• Variable expenses are based on revenues and we assume that the percentage remains constant for flexible budgeting purposes.
• Fixed costs are all within the relevant range.
• Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses.

Case Assignment

Required:

Computations (use Excel)

1. Prepare a flexible budget and show variances for the year that passed. Indicate whether the flexible budget variances are favorable or unfavorable.
2. 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 a table.

Memo (use Word)

Write a 4- or 5-paragraph memo to the division manager explaining the flexible budget variances; how to interpret the information and what action, if any to take. Comment on the 5% marketing proposal too. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.

Short Essay (use Word)