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Resources: Generally Accepted Accounting Principles (GAAP), U.S.
Securities and Exchange Committee (SEC), Green Pastures Static
Budget Income Statement
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Scenario: Green Pastures is a 400-acre farm on the outskirts of the
Kentucky Bluegrass, specializing in the boarding of broodmares and
their foals. A recent economic downturn in the thoroughbred industry
has led to a decline in breeding activities, and it has made the boarding
business extremely competitive. To meet the competition, Green
Pastures planned in 2017 to entertain clients, advertise more extensively,
and absorb expenses formerly paid by clients such as veterinary and
blacksmith fees.
The budget report for 2017 is presented as an attachment. As shown, the
static income statement budget for the year is based on an expected
21,900 boarding days at $25 per mare. The variable expenses per mare
per day were budgeted: feed $5, veterinary fees $3, blacksmith fees
$0.25, and supplies $0.55. All other budgeted expenses were either
semifixed or fixed.
During the year, management decided not to replace a worker who quit
in March, but it did issue a new advertising brochure and did more
entertaining of clients.
Develop a minimum 700-word examination of the financial statements
and include the following:
• Based on the static budget report:
o What was the primary cause(s) of the loss in net income?
o Did management do a good, average, or poor job of controlling
expenses?
o Were management's decisions to stay competitive sound?
• Prepare a flexible budget report for the year.
• Based on the flexible budget report:
o What was the primary cause(s) of the loss in net income?
o Did management do a good, average, or poor job of controlling
expenses?