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    Budgeting, Variance Analysis, and Performance Evaluations

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    T&P Fashion Shops

    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 follows some cost estimates for the Houston store.
    T&P Fashions
    Flexible Budget Information

    Expense Fixed Variable

    Cost of sales $210,000 40% $740,000
    Management 27,000 12% 186,000
    Shop assistants 162,000 8% 268,000
    Rent 13,200 5% 54,450
    Utilities 34,800 34,800

    $447,000 $1,283,250

    Additional information
    •The sales forecast for the year is $1,400,000.
    •Variable expenses are based on revenues. Do note that percentage clause for rent only kicks in above $500,000 in sales.
    •Other expenses are all specific to this store. Headquarters pay for marketing and corporate overhead expenses.
    •T&P wants to see a flexible budget based on the sales forecast, including estimates for sales being 10% below budget and 10% above budget.

    Actual results

    T&P Fashions
    Actual Results from Operations

    Revenues $1,325,000
    Cost of sales 790,000
    Management 208,000
    Shop assistants 230,000
    Rent 58,200
    Utilities 31,000

    Operating profit $7,800


    Computations (use Excel)
    •Prepare a flexible budget in good format.
    •Compute the flexible variances and indicate whether favorable or unfavorable.
    •Headquarters are contemplating charging each store a 5% marketing expense based on sales. How will that affect the operating profit of the store and the money available for managerial bonuses based on actual results for the past year? Summarize the information in the table.

    Memo (use Word)

    Write a 4- or 5-paragraph memo to the division manager explaining the flexible budget variances; how to interpret the information; and what action, if any to take. Comment on the 5% marketing proposal too. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.

    Short Essay (use Word) Start with an introduction and end with a summary or conclusion. Use headings.

    •Discuss how to interpret static and flexible budget variances. How is the information useful in general?
    •What are the benefits of variance analysis? How can such analysis be detrimental rather than beneficial to the organization?

    Assignment Expectations

    Each submission should include two files: (1) An Excel file; and (2) A Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.

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    Solution Preview

    The response addresses the query is posted in 1023 words with APA References.

    // The understanding of standard costing and variance analysis is very important for the divisional managers in order to find the variances in the performance. In this context, in the following discussion, the variance analysis with interpretations and recommendations has been explored.//

    To: XYZ
    From: ABC
    Date: 22 September 2015
    Subject: Variance Analysis


    The understanding of standard costing and variance analysis is very important for the divisional managers in order to find the variances in the performance. In addition to this, in-depth study of the variances helps the managers to reveal the causes for variances and take corrective action timely. In this context, this paper has discussed the interpretation of the variance analysis to find out the reasons of variance and the recommendations for the divisional manager in order to carry out the corrective actions.

    Flexible Budget Variances:

    It can be observed that the division's actual revenues are lower than the budgeted and thus, have resulted in adverse sales variance. In regard to the cost of sales and management expenses, it can be observed that the division has incurred more expenses than the budgets and therefore, the cost of sales variance has resulted in $20,000 adverse, whereas the management expense has resulted in $13,000 adverse. Shop assistant and utility expenses have been incurred less than budgeted figures; hence, favorable variances have been observed. In regard to the rent expenses, the same amount as was budgeted has been incurred resulting in no variance. As a result of the ...

    Solution Summary

    The response addresses the query is posted in 1023 words with APA References.