T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States
T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store. T&P headquarters accumulates and analyzes the information for each store and in the aggregate.
Below is the forecast (budgeted income statement) for the Houston store showing the breakdown of fixed and variable expenses in columns two through four. The last column shows the actual results.
| T&P Fashions – Houston Store |
||||
| Breakdown of Expenses (Forecast) | ||||
| Forecast | Fixed | Variable | Actual | |
| Revenues | $1,400,000 | $1,260,000 | ||
| Cost of Sales | 790,000 | 790,000 | 760,000 | |
| Gross Profit | $610,000 | $500,000 | ||
| Management | 182,000 | 154,700 | 27,300 | 182,000 |
| Shop assistants | 258,000 | 154,800 | 103,200 | 262,000 |
| Rent | 23,200 | 18,560 | 4,640 | 22,000 |
| Utilities | 34,800 | 34,800 | 31,000 | |
| Misc. expenses | 24,500 | 12,250 | 12,250 | 29,000 |
| Total expenses | $522,500 | $526,000 | ||
| Net income | $87,500 | $(26,000) | ||
| ========= | ========= | |||
Additional Information
Variable expenses are based on revenues and we assume that the percentage remains constant for flexible budgeting purposes.
Fixed costs are all within the relevant range.
Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses.
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