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)
	Forecast	Fixed	Variable	Actual
Revenues	$1,400,000			$1,260,000
Cost of Sales	790,000		790,000	760,000
Gross Profit	$610,000			$500,000
Management	182,000	154,700	27,300	182,000
Shop assistants	258,000	154,800	103,200	262,000
Rent	23,200	18,560	4,640	22,000
Utilities	34,800	34,800		31,000
Misc. expenses	24,500	12,250	12,250	29,000
Total expenses	$522,500			$526,000
Net income	$87,500			$(26,000)
	=========			=========

Additional Information

• 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)

Start with an introduction and end with a summary or conclusion. Use headings.

• Discuss how to interpret static and flexible budget variances.
• What are the benefits of variance analysis? How can such analysis be detrimental rather than beneficial to the organization?

Assignment Expectations

Each submission should include two files: (1) An Excel file and (2) a Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.

Module 4 – SLP

BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS

Fourth and final part of the presentation. See background information for the module one SLP.

Required:

Make comments and suggestions on the following topics in your presentation.

• Enterprise and corporate performance management.
• Behavioral change management.
• The balanced score card.
• How to foster goal congruence for the organization and employees.

SLP Assignment Expectations

Submit a PowerPoint presentation or a Word Document. A PowerPoint presentation should have no more than six slides and a Word document cannot exceed two pages. Use words, tables, and graphs to make a succinct presentation. Document all sources and provide links at the end. It is acceptable to add another slide or page to list the sources.

Combine the submissions from prior module(s) into one file before uploading to the dropbox.

Module 4 – Background

BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS

Modular Learning Objectives

Keep the following objectives in mind as you work through the material in this module:

• Define the role of budgeting in an organization.
• Identify the use of budgets.
• Recognize different types of budgets.
• Prepare and analyze budgets.
• Differentiate between a static budget and a flexible budget.
• Apply variance analysis.

Required Reading

This module covers budgeting and variance analysis. Explore these topics further while keeping the above six objectives in mind. Click on the three arrows to explore each topic in more detail.

Check Your Understanding

Check your understanding to make sure that you have a good grasp of the background material. If you are not comfortable with the concepts, review some of the material again or go to the optional resource for more examples.

Click on the quiz icon for an ungraded, 20-question true-or-false self-study quiz to check your progress. If you are not satisfied with the score, review some of the material again. For more in-depth information, review materials listed under optional reading at the bottom of this page.

Final Thoughts Key aspects of budgeting are planning and control. Budgets also serve as tools of communication. Planning is crucial to an organization. It provides a framework for making decisions by establishing goals, objectives, and strategies. It is oriented toward the future and involves an awareness of how today's decisions will affect tomorrow's opportunities. Planning is essential for achieving both short- and long-run organizational goals, and successful managers are continuously planning. Budgets are objective and are measurable. Results-oriented objectives are the foundation for controlling operations. Controls also involve the monitoring of the implementation of plans through performance reviews. They are used to compare actual results with objectives. A flexible budget can be adjusted for changes in assumptions or variations in the level of operations. A budget can be adjusted for changes in assumptions or variations in the level of operations. Variance analysis based on flexible budgets are therefore more meaningful than those based on a static budget.

Optional Reading

For further detail refer to Dr. Walther’s accounting text and videos.

Walther, L. (2017). Chapter 21: Budgeting—Planning for Success.

LICENSES AND ATTRIBUTIONS