Pasture Static Budget Income 418727

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For the Year Ended December 31, 2017, the Green Pastures Stable prepared a static budget income statement to compare actual performance against budgeted expectations. This analysis provides insight into variances in sales, variable and fixed expenses, and net income, highlighting areas of overperformance and underperformance.

Analysis of the Green Pastures Static Budget Income Statement

The static budget presented compares actual results to budgeted figures for Green Pastures, a stable management entity specializing in equine boarding services, for the year ending December 31, 2017. This comparison is crucial for understanding operational efficiency, financial health, and guiding future planning decisions.

Sales Performance

The actual sales revenue amounted to $380,000, significantly below the budgeted figure of $547,500, resulting in a variance of $167,500 unfavorable. The drop in sales could reflect decreased demand, pricing issues, or competitive pressures. Analyzing specific factors impacting sales will inform strategies to boost revenue in future periods.

Variable Expenses Analysis

Variable expenses such as feed, veterinary fees, blacksmith fees, and supplies show notable variances. Total variable costs were $178,330, which is $5,110 less than the budgeted amount, indicating a favorable variance. This reduction suggests efficiency improvements or cost savings in feed and veterinary care, which could be attributed to better supplier negotiations or operational adjustments.

Specifically, feed expenses were under budget by $5,110, potentially due to improved inventory management or supplier discounts. Similarly, veterinary and blacksmith fees were kept below expectations, possibly due to preventive care that reduced emergency costs. These variances highlight areas where cost control measures are effective.

Contribution Margin

The contribution margin, representing revenue after variable expenses, was $201,170, which exceeds the budgeted contribution margin by $2,000, indicating a slight favorable variance. Despite lower sales, decreased variable costs helped maintain profitability levels.

Fixed Expenses Analysis

Fixed expenses totaled $180,000, which is $10,000 over the budgeted amount of $170,000, resulting in an unfavorable variance. Notably, repairs and maintenance, labor, advertisement, and entertainment expenses exceeded budget projections. These overruns could stem from unexpected repair needs, wage increases, or increased promotional activities aimed at boosting future sales.

Depreciation, insurance, and utilities expenses matched the budget, indicating accurate planning in these areas. The overspending in repairs, labor, and entertainment warrants further investigation to optimize future fixed expense allocations.

Net Income Performance

The net income for the period was $21,610, drastically below the budgeted $170,780, with a variance of $149,170 unfavorable. The primary driver of this shortfall is the significant decline in sales coupled with higher-than-anticipated fixed expenses, underscoring the impact of revenue reduction on profitability.

Strategic Implications and Recommendations

To address the findings, Green Pastures should focus on increasing sales through targeted marketing, diversified service offerings, or pricing strategies. Cost control initiatives can help mitigate fixed expense overruns in repairs, labor, and entertainment. Additionally, conducting variance analysis regularly will enable more agile responses to financial discrepancies.

Implementing a flexible budgeting approach and forecasting models can improve financial planning accuracy, especially in the face of fluctuations in demand and costs. Strengthening customer engagement and expanding revenue streams, such as additional horseback riding lessons or special events, could help recover lost income.

Conclusion

The comparison of actual results versus the static budget for Green Pastures reveals areas of both efficiency and concern. While variable expenses were well-managed, declining sales and fixed expense overruns significantly impacted net income. Strategic operational adjustments, cost management, and revenue enhancement initiatives are vital for improving financial performance in future fiscal periods.

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