Use Excel Formulas In All Relevant Cells

Use Excel Formulas In All Applicable Cells

Instructions: Use Excel formulas in all applicable cells. Actual Column 1 Column F, rows 50-56. Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety.

Flexible Budget Column 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 in the military and wants to open another location or help the company expand animal training services to the military after she retires.

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 agreed to sell grooming equipment to a buyer 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 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. Budget and Variance Analysis 2020 Annual Budget and Variance Analysis Annual Sales Volume (units) 2800 Enter sales volume in colum H, row 4. Per Flexible Unit Actual Budget Variance Variance Explanation Sales 39.,600 Investment Income Gain – Sale of Equipment Military training – special operations Total Income 110,600 Less: Variable Expenses Rewards 0. Feed 2.75 7,700 Veterinary Fees 3.,500 Labor 1.25 3,500 Supplies 1.80 5,040 Contractors 0.90 2,520 Advertisement Bedding Specialty Food Total Variable Expenses 29,456 Contribution Margin 81,144 Less: Fixed Expense Lease 350 Depreciation 780 Interest & Penalties 435 Insurance 5,675 Acquisition Rent 6,700 Advertisement 4,700 Repairs & Maintenance 3,460 Entertainment 4,075 SG&A 2,300 Utilities 3,450 Taxes 5,800 Total Fixed Expense 37,725 Net Income (Loss) 43,419 Break Even (Units) Break Even (Dollars) Margin of Safety (Dollars)

Paper For Above instruction

The analysis of the company's financial performance requires detailed budgeting and variance analysis to understand the operational efficiency and profitability. Utilizing Excel formulas ensures accuracy and facilitates dynamic updates for various assumptions and scenarios. This paper demonstrates the process of preparing a flexible budget, calculating the break-even point, and assessing the margin of safety based on provided data and assumptions.

Introduction

Budgeting is a critical process for any organization to plan its operations, allocate resources effectively, and predict future financial outcomes. The flexible budget adapts to changes in activity levels, allowing managers to compare actual performance against expected outcomes at different levels of sales volume. Variance analysis further provides insights into the reasons behind deviations, guiding managerial decisions.

Preparation of the Flexible Budget

The flexible budget utilizes estimated annual units sold, which in this case is 3,500 animals. Key components include revenues, variable expenses, and fixed expenses. Based on the provided data, all calculations are executed in Excel through formulas. For example, total sales are computed as units sold multiplied by the per-unit selling price, adjusted for the increments due to fee increases.

Variable expenses are calculated by multiplying the per-unit cost by the actual units sold or budgeted units, incorporating the 2.75% increase where applicable. Fixed expenses remain constant or are adjusted based on planned changes, such as increased rent or marketing expenditures.

Calculating the Break-Even Point

The break-even point in units is determined by dividing total fixed expenses by the contribution margin per unit. The contribution margin per unit is calculated as sales price per unit minus variable cost per unit. These calculations guide managers on the sales volume required to cover all expenses, ensuring no profit or loss.

The break-even dollar amount is then derived by multiplying the break-even units by the selling price per unit. This provides a monetary threshold that the company's sales must exceed to be profitable.

Margin of Safety

The margin of safety assesses how much sales can decline before the company reaches its break-even point. It is computed as the difference between actual or projected sales and the break-even sales, expressed in dollars. A higher margin indicates lower risk.

Variance Analysis

Variances are calculated by subtracting budgeted amounts from actual results. Positive variances (favorable) occur when actual revenues exceed budget or actual expenses are less than budget, whereas negative variances are unfavorable. Using formulas in Excel, these variances identify areas needing managerial attention and facilitate strategic responses.

Conclusion

Using Excel formulas in preparing budgets and conducting variance analysis enhances accuracy, efficiency, and adaptability in financial planning. By accurately computing the break-even point and the margin of safety, management gains valuable insights into operational performance and risks. Continuous monitoring and analysis support informed decision-making to optimize profitability and sustain growth in a competitive environment.

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