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.

SORIA COMPANY Clothing Department Budget Report For the Month Ended October 31, 2020 Difference Favorable Unfavorable Neither Favorable Budget Actual nor Unfavorable 7,900 11,000 3,100 Favorable Sales in units Variable expenses Sales commissions $2,054 $2,860 $806 Unfavorable Advertising expense 869 770 99 Favorable Travel expense 3,476 4,950 1,474 Unfavorable Free samples given out 1,659 1,210 449 Favorable Total variable 8,058 9,790 1,732 Unfavorable Fixed expenses Rent 1,900 1,900 -O- Neither Favorable nor Unfavorable Sales salaries 1,100 1,100 -0- Neither Favorable nor Unfavorable Office salaries 800 800 -O- Neither Favorable nor Unfavorable Depreciation-autos (sales staff) 600 600 -- Neither Favorable nor Unfavorable Total fixed 4,400 4,400 -- Neither Favorable nor Unfavorable Total expenses $12,458 $14,190 $1,732 Unfavorable

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

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	Workings	Budget	Actual	Differences
Sales in units	(q)	11,000	11,000	0	Neither favorable nor unfavorable
Variable costs:
Sales Commission	($2054/ 7900) X 11000	2,860	$    2,860	$           -	Unfavorable
Advertising expense	($869/ 7900) X 11000	1,210	$        770	$        440	Favorable
Travel expense	($3476/ 7900) X 11000	4,840	$    4,950	$        110	Unfavorable
Free samples given out	($1659/ 7900) X 11000	2,310	$    1,210	$    1,100	Favorable
Total Variable cost		$ 11,220	$    9,790	$    1,430	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		$        800	$        800	0	Neither favorable nor unfavorable
Depreciation - autos (sales staff)		$        600	$        600	0	Neither favorable nor unfavorable
Total Fixed expenses		$    4,400	$    4,400	0	Neither favorable nor unfavorable
Total expense		$ 15,620	$ 14,190	$    1,430	Favorable