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nstructions Jsing the Assignment 2 Worksheet as well as the narrative below, find the variances in the coloured cells and ndicate whether they are favourable (F) or unfavourable (U) and respond to the questions below. Narrative Over the past year, Make It So Kitchens \& Cabinets has found that its customers are reacting to the changing economic situation. Specifically, customers are choosing to refurbish their existing kitchens and cabinets rather than purchase new ones. This shift in customer behaviour is attributable to the lower cost of refurbishing as opposed to replacement with new products. Refurbishing requires less material and less skilled labour than making new cabinets. The salespeople have also discovered that customers are requesting less expensive wood finishes for their orders. While there are many positives to this developing demand on the refurbishing side of the business, experience over the past several years suggests that sales on refurbishing requires more marketing and sales calls as there is greater competition in the marketplace. Commissions are also higher for refurbishing sales. So far, the company has been able to address the additional hours required through asking existing employees to work overtime. Also, because each individual bill for refurbishing tends to be smaller, customers are using credit cards more frequently. Financing costs have remained relatively stable allowing Make It So Kitchens \& Cabinets to purchase new equipment needed to take advantage of the increase in demand for refurbishing. As of March 31, 20XX \begin{tabular}{|c|c|c|c|c|c|c|c|} \hline \\ \hline & & & & & & & \\ \hline & & \multicolumn{5}{|c|}{ Quarter Three (9 months) } & \multirow[t]{2}{*}{ Annualized } \\ \hline & & & & Actuals & & Actuals & \\ \hline & & Budget & Actual & Variance & Variance & Var. (%) & Budget \\ \hline & & 20x & 20xx & 20xx & For U & 20xx & 20xx \\ \hline & & & & & & & \\ \hline \multicolumn{2}{|c|}{ REVENUE } & & & & & & \\ \hline \multicolumn{2}{|r|}{ Sales of Cabinets } & 5,700,000 & 4,980,000 & & & & 7,600,000 \\ \hline \multicolumn{2}{|r|}{ Sales of Refurbishing } & 937,500 & 1,570,000 & & & & 1,250,000 \\ \hline \multicolumn{2}{|c|}{ TOTAL REVENUE } & 6,637,500 & 6,550,000 & & & & 8,850,000 \\ \hline & & & & & & & \\ \hline \multicolumn{8}{|c|}{ Cost of Goods Sold } \\ \hline \multicolumn{2}{|r|}{ Wages \& Benefits } & 1,425,000 & 1,760,000 & & & & 1,900,000 \\ \hline \multicolumn{2}{|r|}{ Materials } & 2,062,500 & 1,520,000 & & & & 2,750,000 \\ \hline \multicolumn{2}{|r|}{ Equipment Depreciation } & 37,500 & 37,500 & & & & 50,000 \\ \hline \multicolumn{2}{|r|}{ Freight \& Shipping } & 900,000 & 620,000 & & & & 1,200,000 \\ \hline \multicolumn{2}{|c|}{ Total COGS } & 4,425,000 & 3,937,500 & & & & 5,900,000 \\ \hline & & & & & & & \\ \hline \multicolumn{2}{|c|}{ GROSS PROFIT } & 2,212,500 & 2,612,500 & & & & 2,950,000 \\ \hline \multicolumn{2}{|r|}{ Gross Margin Gross Profit (\%) } & 33% & 40% & & & & 33% \\ \hline & & & & & & & \\ \hline \multicolumn{8}{|c|}{ Selling, General \& Admin Exps. } \\ \hline \multicolumn{2}{|r|}{ Personnel Costs } & 637,500 & 760,000 & & & & 850,000 \\ \hline & Commissions & 262,500 & 310,000 & & & & 350,000 \\ \hline & Credit Card fees & 150,000 & 185,000 & & & & 200,000 \\ \hline & Marketing Expenses & 90,000 & 129,000 & & & & 120,000 \\ \hline & Office Expenses & 75,000 & 82,000 & & & & 100,000 \\ \hline & Insurance & 60,000 & 60,000 & & & & 80,000 \\ \hline & Interest on Loans & 45,000 & 86,000 & & & & 60,000 \\ \hline & Depreciation & 37,500 & 37,500 & & & & 50,000 \\ \hline \multicolumn{2}{|r|}{ Total S, G, \& A Expenses } & 1,357,500 & 1,649,500 & & & & 1,810,000 \\ \hline \multicolumn{2}{|c|}{ OPERATING INCOME } & 855,000 & 963,000 & & & & 1,140,000 \\ \hline & & & & & & & \\ \hline \multicolumn{2}{|r|}{ NON-OPERATING INCOME } & 90,000 & 72,000 & & & & 120,000 \\ \hline \multicolumn{2}{|r|}{ Earnings Before Taxes (EBT) } & 945,000 & 1,035,000 & & & & 1,260,000 \\ \hline \multicolumn{2}{|r|}{ Income Tax (20\%) } & 189,000 & 207,000 & & & & 252,000 \\ \hline \multicolumn{2}{|r|}{ NET INCOME } & 756,000 & 828,000 & & & & 1,008,000 \\ \hline \multicolumn{2}{|r|}{ Net Income (\% of Revenue) } & 11% & 13% & & & & 11% \\ \hline \end{tabular} Questions 1. One of your junior employees was worried about the 43% variance in the "Marketing Expenses" line item. Offer two reasons that should allow your colleague to feel less concerned. 2. Imagine you are reviewing the attached budget report and have been asked to report your findings to your boss. Choose three significant favourable variances and three unfavourable ones. Do the variances you have selected concern you? Why or why not? (Note: Don't use "Marketing Expenses" as one of your examples.) 3. In preparing the budget for next year, suggest the amount you believe ought to be included in the budget for each of the following line items: 1. Sales of Cabinets 2. Sales of Refurbishing 3. Wages \& Benefits 4. Materials 5. Personnel Costs 6. Commissions 7. Marketing Expenses For each item, offer a one or two sentence justification for the amount you have selected. 4. What additional information related to revenues and expenses would you need to be more confident in the suggestions you've outlined in the previous question? nstructions Jsing the Assignment 2 Worksheet as well as the narrative below, find the variances in the coloured cells and ndicate whether they are favourable (F) or unfavourable (U) and respond to the questions below. Narrative Over the past year, Make It So Kitchens \& Cabinets has found that its customers are reacting to the changing economic situation. Specifically, customers are choosing to refurbish their existing kitchens and cabinets rather than purchase new ones. This shift in customer behaviour is attributable to the lower cost of refurbishing as opposed to replacement with new products. Refurbishing requires less material and less skilled labour than making new cabinets. The salespeople have also discovered that customers are requesting less expensive wood finishes for their orders. While there are many positives to this developing demand on the refurbishing side of the business, experience over the past several years suggests that sales on refurbishing requires more marketing and sales calls as there is greater competition in the marketplace. Commissions are also higher for refurbishing sales. So far, the company has been able to address the additional hours required through asking existing employees to work overtime. Also, because each individual bill for refurbishing tends to be smaller, customers are using credit cards more frequently. Financing costs have remained relatively stable allowing Make It So Kitchens \& Cabinets to purchase new equipment needed to take advantage of the increase in demand for refurbishing. As of March 31, 20XX \begin{tabular}{|c|c|c|c|c|c|c|c|} \hline \\ \hline & & & & & & & \\ \hline & & \multicolumn{5}{|c|}{ Quarter Three (9 months) } & \multirow[t]{2}{*}{ Annualized } \\ \hline & & & & Actuals & & Actuals & \\ \hline & & Budget & Actual & Variance & Variance & Var. (%) & Budget \\ \hline & & 20x & 20xx & 20xx & For U & 20xx & 20xx \\ \hline & & & & & & & \\ \hline \multicolumn{2}{|c|}{ REVENUE } & & & & & & \\ \hline \multicolumn{2}{|r|}{ Sales of Cabinets } & 5,700,000 & 4,980,000 & & & & 7,600,000 \\ \hline \multicolumn{2}{|r|}{ Sales of Refurbishing } & 937,500 & 1,570,000 & & & & 1,250,000 \\ \hline \multicolumn{2}{|c|}{ TOTAL REVENUE } & 6,637,500 & 6,550,000 & & & & 8,850,000 \\ \hline & & & & & & & \\ \hline \multicolumn{8}{|c|}{ Cost of Goods Sold } \\ \hline \multicolumn{2}{|r|}{ Wages \& Benefits } & 1,425,000 & 1,760,000 & & & & 1,900,000 \\ \hline \multicolumn{2}{|r|}{ Materials } & 2,062,500 & 1,520,000 & & & & 2,750,000 \\ \hline \multicolumn{2}{|r|}{ Equipment Depreciation } & 37,500 & 37,500 & & & & 50,000 \\ \hline \multicolumn{2}{|r|}{ Freight \& Shipping } & 900,000 & 620,000 & & & & 1,200,000 \\ \hline \multicolumn{2}{|c|}{ Total COGS } & 4,425,000 & 3,937,500 & & & & 5,900,000 \\ \hline & & & & & & & \\ \hline \multicolumn{2}{|c|}{ GROSS PROFIT } & 2,212,500 & 2,612,500 & & & & 2,950,000 \\ \hline \multicolumn{2}{|r|}{ Gross Margin Gross Profit (\%) } & 33% & 40% & & & & 33% \\ \hline & & & & & & & \\ \hline \multicolumn{8}{|c|}{ Selling, General \& Admin Exps. } \\ \hline \multicolumn{2}{|r|}{ Personnel Costs } & 637,500 & 760,000 & & & & 850,000 \\ \hline & Commissions & 262,500 & 310,000 & & & & 350,000 \\ \hline & Credit Card fees & 150,000 & 185,000 & & & & 200,000 \\ \hline & Marketing Expenses & 90,000 & 129,000 & & & & 120,000 \\ \hline & Office Expenses & 75,000 & 82,000 & & & & 100,000 \\ \hline & Insurance & 60,000 & 60,000 & & & & 80,000 \\ \hline & Interest on Loans & 45,000 & 86,000 & & & & 60,000 \\ \hline & Depreciation & 37,500 & 37,500 & & & & 50,000 \\ \hline \multicolumn{2}{|r|}{ Total S, G, \& A Expenses } & 1,357,500 & 1,649,500 & & & & 1,810,000 \\ \hline \multicolumn{2}{|c|}{ OPERATING INCOME } & 855,000 & 963,000 & & & & 1,140,000 \\ \hline & & & & & & & \\ \hline \multicolumn{2}{|r|}{ NON-OPERATING INCOME } & 90,000 & 72,000 & & & & 120,000 \\ \hline \multicolumn{2}{|r|}{ Earnings Before Taxes (EBT) } & 945,000 & 1,035,000 & & & & 1,260,000 \\ \hline \multicolumn{2}{|r|}{ Income Tax (20\%) } & 189,000 & 207,000 & & & & 252,000 \\ \hline \multicolumn{2}{|r|}{ NET INCOME } & 756,000 & 828,000 & & & & 1,008,000 \\ \hline \multicolumn{2}{|r|}{ Net Income (\% of Revenue) } & 11% & 13% & & & & 11% \\ \hline \end{tabular} Questions 1. One of your junior employees was worried about the 43% variance in the "Marketing Expenses" line item. Offer two reasons that should allow your colleague to feel less concerned. 2. Imagine you are reviewing the attached budget report and have been asked to report your findings to your boss. Choose three significant favourable variances and three unfavourable ones. Do the variances you have selected concern you? Why or why not? (Note: Don't use "Marketing Expenses" as one of your examples.) 3. In preparing the budget for next year, suggest the amount you believe ought to be included in the budget for each of the following line items: 1. Sales of Cabinets 2. Sales of Refurbishing 3. Wages \& Benefits 4. Materials 5. Personnel Costs 6. Commissions 7. Marketing Expenses For each item, offer a one or two sentence justification for the amount you have selected. 4. What additional information related to revenues and expenses would you need to be more confident in the suggestions you've outlined in the previous

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