Question

Garden Gnome is a sole proprietor that services gardens in the Potchefstroom area. Dawie started the business a few years ago, and has never bothered to make any forecasts or compile any budgets. His wife is sick and tired of the current state of the accounting records, and has set an ultimatum. Dawie has to get help immediately with regard to the accounting records and budgets for the business.

Dawie has managed to make the following information regarding the previous six months available to you from his Excel spreadsheets. Unfortunately, he is not sure which part of the cost is variable and which part of the cost is fixed. He did however tell you that the best cost driver for Operating cost is number of hours worked and for admin the best cost driver is gardens serviced.

Jul
2010 Aug
2010 Sept
2010 Oct
2010 Nov
2010 Des
2010
Number of gardens serviced 113 120 140 100 125 133
Number of hours worked 146 180 168 122 176 172
Income 5 650 6 000 7 000 5 000 6 250 6 650
Operating cost (1 995) (2 250) (2 160) (1 815) (2 220) (2 190)
Marketing and admin (1 717) (1 780) (1 960) (1 600) (1 825) (1 897)
Net profit 1 938 1 970 2 880 1 585 2 205 2 563


REQUIRED
1. Prepare a budgeted income statement according to the contribution format (direct income statement) for Garden Gnome for January 2011 if Dawie plans to service 110 gardens and work 150 hours. Show all calculations clearly. (15)
2. If the actual number of gardens serviced during January 2011 were 112, the income R5 152, the budgeted number of gardens in Potchefstroom 275, and the actual number of gardens in Potchefstroom 224, calculate the following variances in terms of number of gardens serviced:
a. Sales price variance
b. Sales volume variance
c. Market size variance
d. Market share variance

QUESTION 4 Garden Gnome is a sole proprietor that services gardens in the Potchefstroom area. Dawie started the business a few years ago, and has never bothered to make any forecasts or compile any budgets. His wife is sick and tired of the current state of the accounting records, and has set an ultimatum. Dawie has to get help immediately with regard to the accounting records and budgets for the business Dawie has managed to make the following information regarding the previous six months available to you from his Excel spreadsheets. Unfortunately, he is not sure which part of the cost is variable and which part of the cost is fixed. He did however tell you that the best cost driver for Operating cost is number of hours worked and for admin the best cost driver is gardens serviced Number of gardens serviced Number of hours worked Income Operating cost Marketing and admin Net profit Jul Aug Sept Oct Nov Des 2010 2010 2010 2010 2010 2010 113 120 140 100 125 133 146 180 168 1 22 176 172 5 650 6000 7000 5000 6250 6650 (1 995) (2 250) (2 160) (1 815) (2220) (2 190) (1 717) (1 780) (1 960) (1 600) (1 825) (1 897) 1938 1970 2 88015852 205 2563 REQUIRED 1. Prepare a budgeted income statement according to the contribution format (direct income statement) for Garden Gnome for January 2011 if Dawie plans to service 110 gardens and work 150 hours. Show all calculations clearly (15) 2. If the actual number of gardens serviced during January 2011 were 112, the income R5 152 the budgeted number of gardens in Potchefstroom 275, and the actual number of gardens in Potchefstroom 224, calculate the following variances in terms of number of gardens serviced: a. Sales price variance b. Sales volume variance C. Market size variance d. Market share variance

Answer 1

1. Budgeted Income Statement for Garden Gnone for Jan 2011

No. of Gardens Served 110

No.of hours Worked 150

Gross Income(Note 1) 5500

Operating Cost (1910)

Marketing and Admin ( 1670)

Net Profit 1920

Note :

1. For 113 Gardens served the income is 5650, and for 110 the income is 5500.

2. For Operating cost and Marketing & Admin cost taken on Avg basis (Compared Prev Months costs).

2.

a) Sales Price Variance :

( Actual Price - Standard Price ) * Actual Unit

b) Sales Volume Variance :

( Actual Service Served  - Budgeted Service Served ) * Standaed Profit

( 112 - 275 ) * 152 => 41688 UF

c) Market Size Variance  :

The Market size variance measures how the changes in market size can alter a company's expected income.

Actual Market Size = weighted avg price of each product * ( Actual Market Size - Budgeted Market size ) * Budgeted Market Share.

d) Market Share Variance :

  Market share variance shows the impact of a change in market share on the profits of a business.

(Actual market share % - Budgeted market share %) x Total market in units x Profit margin/unit.