Topic
Green Pastures Managerial Analysis Report
Instructions
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:
- What was the primary cause(s) of the loss in net income?
- Did management do a good, average, or poor job of controlling expenses?
- Were management’s decisions to stay competitive sound?
- Prepare a flexible budget report for the year.
- Based on the flexible budget report:
- What was the primary cause(s) of the loss in net income?
- Did management do a good, average, or poor job of controlling expenses?
- Were management’s decisions to stay competitive sound?
- What course of action do you recommend for the management of Green Pastures?
Answer Preview
From the analysis above, it is evident that the largest risk to Green Pastures’ continued existence is the changes in its industry. The entry of more competition has substantially eroded its revenues, which have in turn reduced its profits. Going forward, to protect its finances, Green Pastures may have to diversify into other areas that have less competition to shore up its revenues (Kenny, 2009). Secondly, the company has to pursue an aggressive cost cutting program as it seeks out alternative revenue streams. This means reducing its variable and fixed costs considerably to compensate for the reduced revenues.
Word Count: 450