List the common disclosures that are to accompany a personal ...

[jwb375]

List the common disclosures that are to accompany a personal financial statement.
 
  What will be an ideal response?

Question 2

Flexible budget.
 
  Brabham Enterprises manufactures tires for the Formula I motor racing circuit. For August 2014, it budgeted to manufacture and sell 3,000 tires at a variable cost of 74 per tire and total fixed costs of 54,000. The budgeted selling price was 110 per tire. Actual results in August 2014 were 2,800 tires manufactured and sold at a selling price of 112 per tire. The actual total variable costs were 229,600, and the actual total fixed costs were 50,000.
 
  Required:
  1. Prepare a performance report (akin to Exhibit 7- 2, page 253) that uses a flexible budget and a static budget.
  2. Comment on the results in requirement 1.

[reelove4eva]

Answer to Question 1

Like business financial statements, personal financial statements prepared in accordance with GAAP require sufficient disclosures to make them adequately informative. The following items are commonly disclosed:
 Clear identification of the effective (as of) date of the financial statements
 Proper identification of the individuals covered by the financial statements
 Statement that the assets are presented at their estimated current values and liabilities are presented at their estimated current amounts
 Identification of the methods used in determining the estimated current values of major assets and the estimated current amounts of major liabilities
 Statement that the valuation methods used in determining the major categories of assets and liabilities have been employed consistently from one period to the next
 Statement (qualification) regarding any assets held jointly with another person and the nature of the joint ownership

Answer to Question 2

Variance Analysis for Brabham Enterprises for August 2014

Actual Results
(1) Flexible-Budget Variances
(2) = (1)  (3) Flexible Budget
(3) Sales-Volume Variances
(4) = (3)  (5) Static Budget
(5)
Units (tires) sold 2,800g 0 2,800 200 U 3,000g
Revenues 313,600a  5,600 F 308,000b 22,000 U 330,000c
Variable costs 229,600d 22,400 U 207,200e 14,800 F 222,000f
Contribution margin 84,000 16,800 U 100,800 7,200 U 108,000
Fixed costs 50,000g 4,000 F 54,000g 0 54,000g
Operating income  34,000 12,800 U  46,800  7,200 U  54,000

12,800 U  7,200 U
Total flexible-budget variance Total sales-volume variance
20,000 U
Total static-budget variance
a 112  2,800 = 313,600
b 110  2,800 = 308,000
c 110  3,000 = 330,000
d Given. Unit variable cost = 229,600  2,800 = 82 per tire
e 74  2,800 = 207,200
f 74  3,000 = 222,000
g Given

2. The key information items are:

Actual Budgeted
Units
Unit selling price
Unit variable cost
Fixed costs 2,800
 112
 82
50,000 3,000
 110
 74
54,000

The total static-budget variance in operating income is 20,000 U. There is both an unfavorable total flexible-budget variance (12,800) and an unfavorable sales-volume variance (7,200).
The unfavorable sales-volume variance arises solely because actual units manufactured and sold were 200 less than the budgeted 3,000 units. The unfavorable flexible-budget variance of 12,800 in operating income is due primarily to the 8 increase in unit variable costs. This increase in unit variable costs is only partially offset by the 2 increase in unit selling price and the 4,000 decrease in fixed costs.