# Module 4 – Case

## BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS

### Assignment Overview

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 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) ========= =========

• 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.

### Case Assignment

Required:

Computations (use Excel)

1. Prepare a flexible budget and show variances for the year that passed. Indicate whether the flexible budget variances are favorable or unfavorable.
2. 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 a 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)

• Discuss how to interpret static and flexible budget variances.
• 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.

# Module 4 – SLP

## BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS

Fourth and final part of the presentation. See background information for the module one SLP.

Required:

• Enterprise and corporate performance management.
• Behavioral change management.
• The balanced score card.
• How to foster goal congruence for the organization and employees.

### SLP Assignment Expectations

Submit a PowerPoint presentation or a Word Document. A PowerPoint presentation should have no more than six slides and a Word document cannot exceed two pages. Use words, tables, and graphs to make a succinct presentation. Document all sources and provide links at the end. It is acceptable to add another slide or page to list the sources.

Combine the submissions from prior module(s) into one file before uploading to the dropbox.

# Module 4 – Background

## BUDGETING, VARIANCE ANALYSIS, AND PERFORMANCE EVALUATIONS

### Modular Learning Objectives

Keep the following objectives in mind as you work through the material in this module:

• Define the role of budgeting in an organization.
• Identify the use of budgets.
• Recognize different types of budgets.
• Prepare and analyze budgets.
• Differentiate between a static budget and a flexible budget.
• Apply variance analysis.

This module covers budgeting and variance analysis. Explore these topics further while keeping the above six objectives in mind. Click on the three arrows to explore each topic in more detail.