Sales Activity Variance, Service Organization
Refer to the data in Exercise 17 24. Prepare a sales activity variance analysis like the one in Exhibit 16.4 of the previous chapter.
Exercise 17 24: Flexible Budgeting, Service Organization
Lowe & Rent is a law firm that specializes in probate work. Last year, the firm billed more hours than expected, but, as the following data show, profits were lower than anticipated.
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Reported Income |
Master |
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Statement |
Budget |
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Billable hoursa |
6,900 |
6,000 |
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Revenue |
$825,000 |
$750,000 |
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Professional salaries (all variable) |
465,000 |
375,000 |
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Other variable costs (e.g., supplies, computer services) |
108,000 |
102,000 |
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Fixed costs |
174,000 |
180,000 |
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Profit |
$ 78,000 |
$ 93,000 |
Required
Prepare a flexible budget for Lowe & Rent. Use billable hours as the measure of output (that is, units produced).
Exhibit 16.4 Flexible and Master Budget, August—Bayou Division
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A |
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B |
C |
D |
E |
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Flexible Budget |
Sales Activity |
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Master Budget |
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(based on |
Variance |
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(based on |
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actual activity |
(based on |
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planned |
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of 80,000 |
variance in |
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activity of |
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1 |
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units) |
sales volume) |
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100,000 units) |
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2 |
Sales units |
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80,000 |
20,000 |
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100,000 |
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3 |
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4 |
Sales revenue |
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$ 800,000 |
$ 200,000 |
U |
$ 1,000,000 |
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5 |
Less |
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6 |
Variable costs |
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7 |
Variable manufacturing costs |
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304,000 |
76,000 |
F |
380,000 |
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8 |
Variable selling and administrative |
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72,000 |
18,000 |
F |
90,000 |
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9 |
Total variable costs |
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$ 376,000 |
$ |
94,000 |
F |
$ |
470,000 |
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10 |
Contribution margin |
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$ 424,000 |
$ 106,000 |
U |
$ |
530,000 |
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11 |
Fixed costs |
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12 |
Fixed manufacturing overhead |
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200,000 |
–0– |
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200,000 |
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13 |
Fixed selling and administrative costs |
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140,000 |
–0– |
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140,000 |
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14 |
Total fixed costs |
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$ 340,000 |
–0– |
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$ |
340,000 |
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15 |
Profit |
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$ |
84,000 |
$ 106,000 |
U |
$ |
190,000 |
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16 |
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