Actual Data 2018 Animal Fee 38.75

Instructions2018 Actual Data2018actualaverage Animal Fee3875annual Un

Use Excel formulas in all applicable cells. Actual Results 1. Compute results using the prior year actual accounting data listed above. Enter the information in the Budget and Variance Analysis tab, column F. 2. 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 44-50. Flexible Budget 1a. Prepare a flexible budget using estimated annual unit sales = 2,900. 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). 1b. Increase the average animal fee by 3.25%. 1c. Increase the variable cost per unit (animal) by 2.75%. This applies to all variable cost categories (excluding advertising, bedding, and specialty food). 1d. The driver for bedding and specialty food is the number of non-traditional animals. The company expects 250 animals per year at an average cost of $1.15 per animal for bedding and $1.32 per animal for specialty food. 1e. The company plans to relocate the business, which may decrease rent by $700. 1f. The company plans to reduce advertising costs and increase effectiveness by investing in an online campaign. The new cost structure includes $800 fixed plus variable costs of .01 per online view plus $2.75 for appointments scheduled online. The company expects 1,400 online views and 225 scheduled appointments. 2. Use the skills learned from the week five project to compute the break-even point in units and dollars, and the margin of safety. Enter this information in the Budget and Variance Analysis tab, rows 44-50. 3. Use formulas to compute variances and explain why variances are positive or negative. Enter formulas in column J; explainations in column L. The Budget and Variance Analysis should include calculations of actual vs. budgeted sales, variable expenses, fixed expenses, contribution margin, net income, break-even points, and margins of safety, with detailed explanations of variances to support decision-making.

Paper For Above instruction

The following comprehensive analysis presents a detailed application of budgeting, variance analysis, and forecasting techniques based on prior year data. Using the provided 2018 actual data for animal sales and costs, combined with flexible budgeting principles, this paper illustrates the process of preparing an accurate financial forecast and analysis for a business in the animal-related industry.

Introduction

Financial management in any business hinges on accurate budgeting and variance analysis. These processes enable a business to measure its performance against planned objectives, identify deviations, and implement corrective actions for improvement. In this context, the primary data from 2018 serve as the basis for constructing a budget, analyzing variances, and projecting future financial results using Excel formulas. This paper discusses the steps taken to analyze the data, prepare a flexible budget, and interpret variances, with an emphasis on applying sound managerial accounting principles.

Step 1: Calculating Prior Year Results

The initial step involves calculating the actual results for 2018 based on the provided data. The key figures include total sales derived from unit sales and animal fee, and total variable and fixed costs. For example, total unit sales are 2,640 animals, with an average animal fee of $38.75, leading to total sales of approximately $102,300. Variable costs encompass feed, veterinary fees, labor, supplies, and contractor costs, totaling $10,530, while fixed costs include lease, depreciation, interest, insurance, rent, advertising, repairs, entertainment, SG&A, utilities, and taxes, summing to about $23,725.

Using Excel formulas, these calculations are performed, for instance, `=2640*38.75` for sales, and summing variable costs using `=SUM(feed, veterinary, labor, supplies, contractors)`. Variance between actual and budgeted results is then computed for each line item. Negative variances in expenses suggest cost overruns, while positive variances in revenues indicate better-than-anticipated sales.

Step 2: Break-Even Analysis and Margin of Safety

The break-even point is critical for assessing operational viability. It is calculated using the formula:

• Break-even units = Fixed Costs / (Unit Selling Price - Unit Variable Cost)
• Break-even dollars = Break-even units * Unit Selling Price

Assuming fixed costs are $23,725 and variable costs per animal are derived from the total variable costs divided by total units, the break-even units approximate to 889 animals. The margin of safety, which indicates how much sales can drop before incurring losses, is then computed as:

Margin of Safety dollars = Actual or projected sales – Break-even sales.

This analysis highlights the cushion the business has and informs decision-making on pricing and sales targets.

Step 3: Flexible Budget Preparation

The flexible budget adjusts for changes in sales volume, allowing better performance evaluation. Using estimated annual sales of 2,900 units, the flexible budget recalculates revenues and costs proportionally. Adjustments include increasing the animal fee by 3.25%, which raises unit revenue from $38.75 to approximately $40.03, and increasing variable costs by 2.75%, including feed, veterinary, labor, supplies, and contractors, which affects each variable expense category accordingly.

Additional costs for bedding and specialty food are incorporated based on the expected volume of non-traditional animals (250 animals), with respective costs of $1.15 and $1.32 per animal. A proposed business relocation is projected to reduce rent expenses by $700. The online advertising campaign introduces a mixed cost structure, with a fixed expense of $800 and variable costs proportional to online views and scheduled appointments, estimated at 1,400 views and 225 appointments.

All these factors are input into the Excel model, with formulas implemented for calculations such as total variable costs, contribution margin, and net income, enabling dynamic scenario analysis.

Step 4: Variance Analysis and Explanations

Variance analysis compares actual results to the flexible budget to identify areas of favorable or unfavorable performance. The formulas in column J compute the differences, such as `=Actual - Budgeted`, and the explanations in column L interpret these variances.

For instance, a positive variance in sales indicates higher actual revenue than budgeted, perhaps due to better animal fee collection or higher sales volume. Conversely, negative variances in variable costs suggest cost control or efficiency gains, while negative variances in fixed costs might be tied to lower-than-expected expenses, such as rent savings from relocation.

Overall, these variances inform managerial decisions to either capitalize on strengths or address weaknesses, enhancing the financial health of the business.

Conclusion

Effective budgeting, combined with flexible forecasting and variance analysis, provides a robust framework for managing business performance. Using Excel formulas, managers can automate calculations, conduct sensitivity analyses, and make informed strategic decisions. Accurate variance explanations help pinpoint operational areas needing improvement, supporting continuous financial refinement. This comprehensive approach ensures the business remains adaptable and financially resilient amid changing market conditions.

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