This document provides directions for creating a master budget performance report and flexible budget performance report for Kelsey's Frozen Confectionaries. It includes instructions for populating the reports with formulas to calculate variances, percentages, and conditional formatting. It also provides questions to analyze the variances and determine if they are consistent with management's explanations for operational changes. The directions are extensive and provide examples to check calculations.

1. Directions
Flexible Budget Performance Report Project
You and your partner will each work on this project on your
own laptops, using each other for resources while completing
the assignment. In the end, you will Turn in ONE project per
team. If you or your partner feels you did not share equally in
the work, email me for a possible grade adjustment. Otherwise,
you will both receive the same grade. Upload your completed
project to Canvas using “Flex Budget_Last Name ID#_Last
name ID# “ as the file name.
Kelsey’s Frozen Confectionaries buys and distributes single-
serve ice cream treats to convenience stores, ballparks, and
amusement parks. In this project, you will create 1) a master
budget performance report, and 2) a flexible budget
performance report for Kelsey's Frozen Confectionaries. Your
performance reports should be developed in such a way that any
changes to the original assumptions will correctly ripple
through the entire spreadsheet. After developing the
performance reports, you will answer questions about the
variances and determine whether the variances are consistent
with management's explanation about operational changes that
took place during the period.
Part 1) DIRECTIONS for Master Budget Performance Report:
1) Use the budget assumptions, along with Excel formulas, to
populate the Master Budget column. Note: Your formulas must
work such that if ANY of the budget assumptions change, the
new assumptions ripple through the entire budget. Part of your
grade will be based on whether you correctly formulate the
cells. Do NOT TYPE A NUMBER IN ANY CELL!!!

2. 2) Use a formula to calculate the “variance” in cell H7: (Actual
– Budget). Copy and paste (or use the fill handle to drag) the
formula to the rest of the cells in the column. Leave as positive
or negative, rather than absolute values.
3) Use a formula to calculate the “Variance percentage”.
NOTE: The percentage is the variance as a percent of the
Master Budget. Copy and paste (or drag) the formula to the rest
of the cells in the column
4) Format cells appropriately. Attention to detail makes a
report look more professional. (For example, percentages
shown as %, dollar signs using the accounting or currency
format, underlines and double underlines where appropriate,
zero decimal places for dollar amounts, etc.,).
5) Use the “If” statement function to show the variances as U or
F. The “If” statement can be found under “Formulas, Logical”.
Example: =IF(H7>=0,"F","U"). This formula means: If cell
H7>0 or H7=0, then mark as “F”; If not greater than or equal
to 0, mark as “U”. Be careful with revenues and expense
variances since they should be opposite of one another. ALSO-
The formula you use should mark any variance of “0” as an “F”
since a zero variance means that budget expectations have been
met. After using the function, check each line to make sure it is
going in the direction you believe it should go.
6) Check your answers using the following check figures:
Budgeted CM= $301,000; Budgeted Op Inc. = $211,000;
Variance for Commissions = $8,685; Variance percentage for
Commissions = 17.4 %, Unfavorable.
7) Use management by exception to determine which variances
to investigate. HINT: In column K, use the “If function”, along
with “Absolute value function” to find the variances that are

3. larger than the decision rule. Also, since the decision rule is in
B21 and you want Excel to always compare to B21, you need to
make it an absolute reference: $B$21.
For example, =IF(ABS(I7)>($B$21),"yes","no"). After using
the function, check each line to see whether your formula
worked properly.
8) Use the Conditional Formatting feature to automatically
highlight any variance that says "yes" to investigate. First,
select all of the answers in the "investigate?" column with your
cursor. Next select "Conditional formatting" from the home
tab on the ribbon. From the drop-down choices select
"highlight cells rules" then "Text that contains....". A
dialogue box will open. Type in "yes" as the text you want.
Leave the default highlight color, or choose a different color
from the options listed. Then click OK. Notice how every cell
containing "yes" is now highlighted!
9) Center the U/F and Yes/No in the middle of the columns for
easier readability.
10) Now check to see if everything ripples through the budget if
you change an assumption. Try changing the assumed sales
volume to 20,500 and Shipping expense to $2.10 per case. You
should have a new total variance for operating income of
$21,287, 9.8% variance, F, No.
11) Change the sales volume assumption back to $20,000 and
the shipping expense assumption back to $2.00 before
continuing.
Part 2) DIRECTIONS for Flexible Budget Performance Report:
1) Copy and Paste all of the line items (account names) from the
master budget performance report into the Flexible Budget
Performance report.

4. 2) Copy and Paste all of the actual figures to the actual column
of the Flexible Budget Performance report.
3) Formulate the Master Budget figures by referencing the
appropriate cells in the master budget performance report
(e.g.=B7). By doing so, if any assumptions change, they will
ripple through BOTH performance reports.
4) Build the Flexible Budget by using the ACTUAL SALES
VOLUME achieved along with the original budget assumptions.
This is very similar to building a master budget, except you are
using actual sales volume. Assume the actual sales volume
achieved is in the same relevant range as the original budget
assumptions.
5) Try using the “accounting” or “currency” settings to get
dollar signs, commas, and brackets on negative numbers. Add
underlines and double underlines as needed. Remove any
decimals.
6) Head the appropriate column for the Volume Variance and
then use Excel formulas to populate the cells in that column
(e.g., +H33-J33). Once you get the first cell done, copy and
paste (or drag) the formula to the other cells.
7) Head the appropriate column for the Flexible Budget
Variance and then use Excel formulas to populate the cells in
that column (e.g. +F33-H33). Again, copy and paste the
formulas to the other cells.
8) Use the following check figures to check your formulas so
far:
Shipping Expense: $44,213 $1,293 $42,920 $2,920
$40,000

5. 9) Format cells appropriately. Attention to detail makes a
report look more professional. (For example, dollar signs
using the accounting or currency format, underlines and double
underlines where appropriate, zero decimal places for dollar
amounts, etc.,).
10) To save time, we won’t add the U and F designations to the
flexible budget performance report. However, you’ll need to
mentally figure out which way they go. The interpretation of
the volume variance is a little problematic because it compares
two budgets, rather than budget vs. actual. HINT: Think of
the MASTER BUDGET as the company’s target when
determining whether the volume variance should be designated
as a U or F.
11) Complete worksheet: Analysis- page 1.
12) Complete worksheet: Analysis- page 2.
13) Check report against grading rubric before submitting your
project on Canvas.
Performance ReportBudget assumptions:Kelsey's Frozen
ConfectionariesMaster Budget Performance
ReportVolume20,000casesFor the month ended June 30Sales
Revenue$ 50.00per casePercent sold on credit90%percent of
salesACTUALMASTER BUDGETVARIANCEVAR. %F or
UInvestigate?Volume (in
cases)21,46020,0001,4607%UNoVariable Expenses:CGS$
30.00per caseSales Revenue$ 1,131,0201,000,000$
131,02013%UNoSales Commission$ 2.50per caseLess
Variable Expenses:Shipping Expense$ 2.00per case Cost of
Goods Sold$ 682,880600,000$ 82,88014%UNoBad Debt

6. Expense1.00%percent of credit sales Sales Commissions$
58,68550,000$ 8,68517%UNo Shipping Expense$
44,21340,000$ 4,21311%UNoFixed Monthly Expenses: Bad
debt expense$ 16,93018,000$ (1,070)-6%FNoSalaries$
40,000Contribution Margin$ 328,312292,000$
36,31212%UNoLease on Distribution center$ 17,000Less
Fixed Expenses:Depreciation on fleet & Equip$ 12,000
Salaries$ 43,00040,000$ 3,0008%UNoAdvertising$ 10,000
Lease on Distn center$ 15,50017,000$ (1,500)-9%FNoOffice
rent, phone, internet$ 11,000 Deprec. on fleet/equip$
12,00012,000$ - 00%FNo Advertising$ 7,75010,000$
(2,250)-23%FYesManagement by exception 15%Investigation
rule Office rent, phone, net$ 12,30011,000$
1,30012%UNoOperating Income$ 237,762202,000$
35,76218%UNoKelsey's Frozen ConfectionariesFexible Budget
Performance ReportFor the month ended June
30ACTUALFLEXIBLE BUDGETMASTER BUDGETVolume
214602146020,000Sales Revenue 1,130,02058,020
F1,073,00073,000 F1,000,000Less Variable Expense Cost of
Goods Sold682,88039,080 U643,80043,800 U600,000Sales
Commission58,6855,035 U53,6503,650 U 50,000Shipping
Expense 44,2131,293 U42,9202,920 U40,000Bad Debt Expense
16,9302,384 F19,3141,314 U18,000Contribution
Margin328,31214,996 F313,31621,316 F292,000Less: Fixed
Expense Salaries43,0003,000 U40,000None40,000Lease of
Distribution Center15,5001,500
F17,000None17,000Depreciation of Fleet & Equipment
12,000None12,000None12,000Advertising 7,7502,250 F
10,000None10,000Office Rent , Phone, Net12,3001,300
U11,000None11,000237,76214,446 F223,31621,316 F202,000
HINTS on EXCEL:
1) If you get a series of hashmarks (######) it just means your
column width is not wide enough to accomodate the number.
Increase column width and/or delete extra decimal places.

7. 2. To add numbers, put your cursor on the cell where you want
the answer to be. Then keystroke the addition sign (+) and
then click on the cell you want add, then keystroke the addition
sign again (+) and click on the second cell you want to add.
Continue in the same fashion for multiple cells. Use the
subtraction sign (-) for subtracting cells. If you have an array
of cells to add, you can use the AutoSum button.
3. To multiply, use the * symbol. To divide, use the / symbol.
4. Make use of copy/paste commands (or the fill handle) when
you want similar forumulas in different cells.
5. Always check the logic of your results after entering
formulas to make sure the spreadsheet is doing what you really
want it to do.
NOTE: The most common mistake in this project involves the
F/U formulas (Step 5 of the directions). Remember, revenues
and expenses go in opposite directions, so your formula needs
to be adjusted for that fact. Also, be sure any variance of $0
would be would end up being shown as a favorable variance. .
Finally, think about which direction CM and Operating income
should go: the same direction as revenue, or the same direction
as expenses?
Analysis- page 1Answer the following questions (dollar
amount; F or U?; Reason, when asked)Dollar amountF or UYes
or NoWhat is the flex budget variance for operating
income?What is the volume variance for operating income?What
do the flex budget variance and volume variance for operating
income sum to? Does this equal the total master budget
variance Yes or No?Should it always sum (or net) to the total
master budget variance, even if one is U and one is F? Yes or
No?How much of the master budget variance for Sales was
caused by an UNANTICIPATED increase in volume?How much
of the master budget variance for Commission Expense was

8. caused by an UNANTICIPATED increase in volume?How much
of the master budget variance for Advertising Expense was
caused by an UNANTICIPATED increase in volume?How much
of the master budget variance for CGS was caused by some
factor OTHER THAN volume?Possible reasonWhat could
account for this variance?How much of the master budget
variance for Sales Revenue was caused by some factor OTHER
THAN volume?What could account for this variance?How much
of the master budget variance for Advertising Expense was
caused by some factor OTHER THAN volume?What could
account for this variance?
Your answers to each question should be shown in the shaded
cells.
Analysis- page 2Income Statement line
itemConsistentInconsistentUnexplainedAll sales volume
variancesFlexible budget variances: Sales RevenueCost of
Goods soldCommission expenseShipping ExpensesBad debt
expenseSalaries expenseLease of distribution
centerDepreciation of fleet & Equip.Advertising expenseOfice
rent, phone, internet
Managers and auditors always analyze the variances between
actual and budget. Say you were auditing this client and they
gave you the following story (below). Is the story consistent
with the overall pattern of variances? Which elements of the
story are consistent with the explanations? Which variances
are inconsistent, or left unexplained? Be sure to analyze every
line item on the budget.
Client Story: In order to motivate our sales force to increase
sales, we decided to increase our commissions and salaries and
increase marketing. At the same time, our supplier increased
its prices, and we felt we could pass that cost increase on to our
customers in the form of price increase. However, with the
additional pressure to make sales, coupled with the increased
sales price, we had to loosen credit terms on sales (extend more
credit to more customers). We also had to lease a little more

9. distribution space and acquire another truck to handle the
volume increase. Our shipping expense relates to gasoline used
for deliveries. Luckily, gas prices went down from what we
originally expected this year.
In the table below, classify each account on the budget
according to whether the variances in the performance report
are consistent, inconsistent, or left unexplained by the client’s
story. Place an “X” in the appropriate column.
Grading RubricGrading rubricPointsMaster budget performance
ReportCorrect numbers using only formulas5Correct
percentages using only formulas5Correct U/F using only
formulas5Correct Yes/No using only formulas5Correct
conditional formatting automatically highlights all "yes"
answers2Clean formatting ($, %, underlines/double underlines
only where appropriate, no decimals, etc)5Flexible budget
performance reportCorrect numbers using only
formulas10Correct titles4Clean formatting5Analysis- page
123Analysis- page 211Total Points80