(Comprehensive; analyzing cost control) The financial results for the Business Education Department of Omega Educational Services Corporation for November 2010 are presented in the schedule at the end of this problem. Caroline Roper, president of Omega Educational Services, is pleased with the final results but has observed that the revenue and most of the costs and expenses of this department exceeded the budgeted amounts. Bret Shulman, vice president of the Business Education Department, has been requested to provide an explanation for any amount that exceeded the budget by 5 percent or more.
Shulman has accumulated the following facts to assist in his analysis of the November results:
- The budget for calendar year 2010 was finalized in December 2009, and at that time, a full program of business education courses was scheduled to be held in St. Louis during the first week of November 2010. The schedule allowed eight courses to be run on each of the five days during the week. The budget assumed that there would be 425 participants in the program and 1,000 participant days for the week.
- Omega Educational Services charges a flat fee of $150 per day of course instruction, so the fee for a three day course is $450. Omega grants a 10 percent discount to persons who subscribe to its publications. The 10 percent discount is also granted to second and subsequent registrants for the same course from the same organization. However, only one discount per registration is allowed.
Historically, 70 percent of the participant day registrations are at the full fee of $150 per day, and 30 percent of the participant day registrations receive the discounted fee of $135 per day. These percentages were used in developing the November 2010 budgeted revenue.
- The following estimates were used to develop the budgeted figures for course related expenses:
|
Food charges per participant day (lunch/coffee breaks) |
$ 27 |
|
Course materials per participant |
8 |
|
Instructor fee per day |
1,000 |
- A total of 530 individuals participated in the St. Louis courses in November 2010, accounting for 1,280 participant days. This number included 20 persons who took a new, two day course on pension accounting that was not on the original schedule; thus, on two of the days, nine courses were offered, and an additional instructor was hired to cover the new course. The breakdown of the course registrations follows.
|
Full fee registrations |
704 |
|
Discounted fees |
|
|
Current periodical subscribers |
128 |
|
New periodical subscribers |
128 |
|
Second registration from the same organization |
320 |
|
Total participant day registrations |
1,280 |
A combined promotional mailing was used to advertise the St. Louis pro gram and a program in Boston that was scheduled for December 2010. The incremental costs of the combined promotion were $5,000, but none of the promotional expenses ($20,000) budgeted for the Boston program in December will have to be incurred. This earlier than normal promotion for the Boston program has resulted in early registration fees collected in November as follows(in terms of participant days):
|
Full fee registrations |
140 |
|
Discounted registrations |
60 |
|
Total participant day registrations |
200 |
- Omega Educational Services includes $2,000 in each monthly budget for the • purpose of updating courses or adding new ones. The additional amount spent on course development during November was for an unscheduled course that will be offered in February for the first time.
Shulman has prepared the following quantitative analysis of the November 2010 variances:
|
Omega Educational Services Corporation |
||||
|
Statement of Operations Business Education Department |
||||
|
For the Month Ended November 30, 2010 |
||||
|
|
|
Favorable |
Favorable |
|
|
|
|
(Unfavorable) |
(Unfavorable) |
|
|
Budget |
Actual |
Dollars |
Percent |
|
|
Revenue: Course fees |
$145,500 |
$212,460 |
$ 66,960 |
46.0 |
|
Expenses |
|
|
|
|
|
Food charges |
$ 27,000 |
$ 32,000 |
$ (5,000) |
(18.5) |
|
Course materials |
3,400 |
4,770 |
(1,370) |
(40.3) |
|
Instructor fees |
40,000 |
42,000 |
(2,000) |
(5.0) |
|
Instructor travel |
9,600 |
9,885 |
(285) |
(3.0) |
|
Staff salaries and benefits |
12,000 |
12,250 |
(250) |
(2.1) |
|
Staff travel |
2,500 |
2,400 |
100 |
4.0 |
|
Promotion |
20,000 |
25,000 |
(5,000) |
(25.0) |
|
Course development |
2,000 |
5,000 |
(3,000) |
(150.0) |
|
Total expenses |
$116,500 |
$133,305 |
$(16,805) |
(14.4) |
|
Revenue over expenses |
$ 29,000 |
$ 79,155 |
$ 50,155 |
172.9 |
|
Omega Educational Services Corporation |
||
|
Analysis of November 2010 Variances |
||
|
Budgeted revenue |
|
$145,500 |
|
Variances |
|
|
|
Quantity variance [(1,280 − 1,000) X $145.50] |
$40,740 F |
|
|
Mix variance [($143.25 − $145.50) X 1,280] |
2,880 U |
|
|
Timing difference ($145.50 X 200) |
29,100 F |
66,960 F |
|
Actual revenue |
|
$212,460 |
|
Budgeted expenses |
|
$116,500 |
|
Quantity variances |
|
|
|
Food charges [(1,000 − 1,280) X $27] |
$ 7,560 U |
|
|
Course materials [(425 − 530) X $8] |
840 U |
|
|
Instructor fees (2 − $1,000) |
2,000 U |
10,400 U |
|
Price variances |
|
|
|
Food charges [($27 − $25) X 1,280] |
$ 2,560 F |
|
|
Course materials [($8 − $9) X 530]Timing differences |
530 U |
2,030 F |
|
Promotion |
$ 5,000 U |
|
|
Course development |
3,000 U |
8,000 U |
|
Variances not analyzed (5% or less) |
|
|
|
Instructor travel |
$ 285 U |
|
|
Staff salaries and benefits |
250 U |
|
|
Staff travel |
100 F |
435 U |
|
Actual expenses |
|
$133,305 |
After reviewing Shulman’s quantitative analysis of the November variances, pre pare a memorandum addressed to Roper explaining the following:
a. The cause of the revenue mix variance.
b. The implication of the revenue mix variance.
c. The cause of the revenue timing difference.
d. The significance of the revenue timing difference.
e. The primary cause of the unfavorable total expense variance.
f. How the favorable food price variance was determined.
g. The impact of the promotion timing difference on future revenues and expenses.
h. Whether or not the course development variance has an unfavorable impact on the company.