# ACC 561 Week 6 Budget Preparation And Variance Analysis (June 2020 Syllabus)

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Attachments: ACC 561 Week 6 Budgt Prep Variance Analysis (June 2020 Syllabus).xlsx [ Preview Here ]

The purpose of this assignment is to evaluate and prepare a budget.

Resources: Excel File. Tutorials and links to Excel help files were provided during week one of our class.

Instructions:

1. Download the Excel file provided. The file is available at the end of week five.

3. Complete the Budget and Variance Analysis tab.

4. Submit the completed Excel file.

1          Prepare a flexible budget using estimated annual unit sales = 3,500.   Enter volume in the Budget and Variance Analysis tab, column H, row 4.  Enter all other data and calculations in the appropriate cells (column H).

2          The company adopted the accrual method of accounting in 2019.  The cumulative affect of change in accounting principle, net of tax, equal to \$35K was recorded with their GAAP based financial statements.

3          The company purchased equipment equal to \$20,000.  Terms:  5 year loan with an interest rate equal to 4.8% and \$5,000 cash down payment.

Depreciation:  Straight-line method, 5 year useful life, no residual value.

4          Increase the average animal fee by 1.75% for the first five months and 2.85% for the remaining seven months of the year.

5          The owner’s sister is stationed in Europe with the military and wants to open another location or help with animal training for the military after she transitions to civilian life.  Estimated start-up costs are \$25K.

She doesn’t know if this will occur nor is the owner definitively planning for this option.

6          The owner is evaluating regional competitors for a potential business acquisition.  Approximately \$5,000 will be invested with a third party search firm in 2020.

7          Excess cash was invested in an S&P 500 Index fund with estimated annual capital gain and dividend income equal to \$11,000.

8          The company sold grooming equipment for a \$500 dollar gain.  However, the equipment is not expected to be delivered to the buyer nor will the owner receive payment.

9          The company is diversifying into animal training and recorded unearned income in 2019 equal to \$175,000 for cash advances from the U.S. government.  The company expects to train several animals for special operation forces in 2020.

Earned income is estimated to be \$125,000.

10        Increase the variable cost per unit (animal) by 2.75%.  This applies to all variable cost categories (excluding advertising, bedding, and specialty food).

11        The driver for bedding and specialty food is the number of non-traditional animals.  The company expect 320 animals per year at an average cost of \$1.75 per animal for bedding and \$1.35 per animal for specialty food.

12        The company plans to relocate the business.  This may increase rent by \$750.

13        The company uses a dated advertising program including the yellow pages and billboard signs.  The company plans to reduce costs and increase effectiveness by investing in an online campaign.

The cost structure changes to a mixed cost and includes \$1200 fixed plus variable costs.  The variable cost is equal to .05 per online view plus \$4.00 for appointments scheduled online.

The company expects 1,550 views and 225 scheduled appointments.

14        Use the skills you learned from the week five project.  Compute the break even point in units and dollars.  Compute the margin of safety.  Enter the information in the Budget and Variance Analysis tab, rows 50-56.

15        Use formulas to compute variances and explain why the variances are positive or negative.  Enter formulas in the Budget and Variance Analysis tab column J.  Write your explanations in column L.

Download the Excel file provided. Your responsibility is to calculate prior year actual results and prepare a flexible budget. Use prior year data to complete the 2018 variable costing income statement. The flexible budget includes several changes to the data. The changes are listed in the Excel file / Instructions Tab.

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

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 = 3,000*3.23=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 17 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 18 and 19 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 typically 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.

Column L: Explain the difference

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