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Budget Preparation and Variance Analysis

Budget Preparation and Variance Analysis

Assignment Content

  1. The purpose of this assignment is to evaluate and prepare a budget. 
    Resources: Excel File. Tutorials and links to Excel help files were provided during week one of our class.    
    1. Download the Excel file provided.   
    2. Read the instructions tab.
    3. Complete the Budget and Variance Analysis tab.
    4. Submit the completed Excel file.

General Instructions: Download the Excel file provided. Your responsibility is to, in part, prepare the 2020 budget using prior year data and the information included with the instructions tab.

1. Actual column: compute the break even in units and dollars. Compute the margin of safety.

2. Flexible Budget column: Complete the 2020 Flexible Budget column incorporated with the budget and variance analysis tab. The flexible budget includes several changes to the data. The changes are listed in the Excel file / Instructions Tab.

2a. Compute variances.

2b. Explain the variances.

2c. Compute the break even in units and dollars.  

2d. Compute the margin of safety.

The format used is a variable costing income statement.

Excel: In order to minimize errors, improve accuracy, and increase efficiency use formulas in all cells. If you need assistance with Excel review the week one questions thread. Included therein are several options to help you advance your Excel skills such as, in part, formula overview, basic math skills, and Excel essential training (week one learning activities).  

Video: In order to gain experience and insight please review the following video. It is a simple presentation and will help everyone develop a basic understanding of flexible budgets. The video was created by a third party. There are additional videos included with the Bing search as well. 

Flexible Budget Example

Flexible Budget Guidance: For additional information regarding flexible budgets please review the following.

What is a flexible budget?

Based on the example, fixed expenses do not change with volume. Contrary, variable expenses change with volume. With respect to the case study the same principles apply. The only difference is that our variable expenses will change based on sales volume instead of machine hours.


Sales Volume 2,800

Feed cost per animal 2.75

Total feed cost = 2,800*2.75=7,700

Advertisement, Bedding and Specialty Food Expense: Advertisement is a fixed expense at the 2,800 volume level (column F). As a result, column F, row 22 is equal to -0-. However, the expense is considered a mixed cost (fixed and variable) with the flexible budget (column H). Bedding and specialty food does not apply to the actual results (column F). As a result, column F, rows 23 and 24 is equal to -0-. For further clarification my suggestion is to read the instructions tab.

Variance and Variance Explanation: A variance is the difference between two numbers. From a budget perspective we compare actual business results to our budget. Material deviations are analyzed to help us plan, in part, revenue projections, expense levels, cash flow, and to make informed business decisions. 

Calculate the variance for all items listed on the spreadsheet (i.e. sales, all variable and fixed expenses, contribution margin, net income, and the break even computation).

Column J: Enter the difference between actual results and the budget.

Column L: Explain the difference.

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