Question

As sales manager, Joe Batista was given the following static budget report for selling expenses in the Clothing Department of Soria Company for the month of October.

Sales in units	8,500		9,000		500	Favorable
Variable expenses
Sales commissions	$2,210		$2,160		$50	Favorable
Advertising expense	935		900		35	Favorable
Travel expense	3,740		3,600		140	Favorable
Free samples given out	2,040		990		1,050	Favorable
Total variable	8,925		7,650		1,275	Favorable
Fixed expenses
Rent	1,900		1,900		–0–	Neither Favorable nor Unfavorable
Sales salaries	1,100		1,100		–0–	Neither Favorable nor Unfavorable
Office salaries	900		900		–0–	Neither Favorable nor Unfavorable
Depreciation—autos (sales staff)	600		600		–0–	Neither Favorable nor Unfavorable
Total fixed	4,500		4,500		–0–	Neither Favorable nor Unfavorable
Total expenses	$13,425		$12,150		$1,275	Favorable

As a result of this budget report, Joe was called into the president’s office and congratulated on his fine sales performance. He was reprimanded, however, for allowing his costs to get out of control. Joe knew something was wrong with the performance report that he had been given. However, he was not sure what to do, and comes to you for advice.

Prepare a budget report based on flexible budget data to help Joe. (List variable costs before fixed costs.)

Answer 1

	Workings	Budget	Actual	Differences
Sales in units	(q)	9,000	9,000	0	Neither favorable nor unfavorable
Variable costs:
Sales Commission	($2210/ 8500) X 9000	2,340	$    2,160	$             180	Favorable
Advertising expense	($935/ 8500) X 9000	990	$        900	$               90	Favorable
Travel expense	($3740/ 8500) X 9000	3,960	$    3,600	$             360	Favorable
Free samples given out	($2040/ 8500) X 9000	2,160	$        990	$         1,170	Favorable
Total Variable cost		$    9,450	$    7,650	$         1,800	Favorable
Fixed expenses:
Rent		$    1,900	$    1,900	0	Neither favorable nor unfavorable
Sales salaries		$    1,100	$    1,100	0	Neither favorable nor unfavorable
Office salaries		$        900	$        900	0	Neither favorable nor unfavorable
Depreciation - autos (sales staff)		$        600	$        600	0	Neither favorable nor unfavorable
Total Fixed expenses		$    4,500	$    4,500	0	Neither favorable nor unfavorable
Total expense		$ 13,950	$ 12,150	$         1,800	Favorable

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