Chapter 10, Problem 10.28C

1

To determine

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties

Prepare flexible budget performance report for the year that shows both spending and activity variance.

Answer to Problem 10.28C

Explanation of Solution

Actors and directors wages:

  $Varible\cos tsrespecttonumberofperformances=\frac{TotalCosts}{Numberofperformances}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofperformances=\frac{\$216,000}{108}\\ Varible\cos tsrespecttonumberofperformances=\$2,000q_2\end{array}$

Stagehands wages:

  $Varible\cos tsrespecttonumberofperformances=\frac{TotalCosts}{Numberofperformances}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofperformances=\frac{\$32,400}{108}\\ Varible\cos tsrespecttonumberofperformances=\$300q_2\end{array}$

Ticket booth personnel and usher wages:

  $Varible\cos tsrespecttonumberofperformances=\frac{TotalCosts}{Numberofperformances}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofperformances=\frac{\$16,200}{108}\\ Varible\cos tsrespecttonumberofperformances=\$150q_2\end{array}$

Theater Hall Rent:

  $Varible\cos tsrespecttonumberofperformances=\frac{TotalCosts}{Numberofperformances}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofperformances=\frac{\$54,000}{108}\\ Varible\cos tsrespecttonumberofperformances=\$500q_2\end{array}$

Printed programs

  $Varible\cos tsrespecttonumberofperformances=\frac{TotalCosts}{Numberofperformances}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofperformances=\frac{\$27,000}{108}\\ Varible\cos tsrespecttonumberofperformances=\$250q_2\end{array}$

Costumes and props:

  $Varible\cos tsrespecttonumberofproductions=\frac{TotalCosts}{Numberofproduction}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofproductions=\frac{\$108,000}{6}\\ Varible\cos tsrespecttonumberofproductions=\$18,000q_1\end{array}$

Publicity

  $Varible\cos tsrespecttonumberofproductions=\frac{TotalCosts}{Numberofproduction}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofproductions=\frac{\$12,000}{6}\\ Varible\cos tsrespecttonumberofproductions=\$2,000q_1\end{array}$

Administrative expenses:

Total administrative expenses = $43,200

Fixed expenses= $\$43,200\times 75\%=\$32,400$

Variable expenses:

  $Varible\cos tsrespecttonumberofproductions=\frac{TotalCosts}{Numberofproduction}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofproductions=\frac{\$43,200\times 15\%}{6}\\ Varible\cos tsrespecttonumberofproductions=\$1,080q_1\end{array}$

  $Varible\cos tsrespecttonumberofproductions=\frac{TotalCosts}{Numberofproduction}$

  $\begin{array}{l}Varible\cos tsrespecttonumberofproductions=\frac{\$43,200\times 10\%}{108}\\ Varible\cos tsrespecttonumberofproductions=\$40q_2\end{array}$

Administrative expenses cost equations $=\$32,400+\$1,080q_1+\$40q_2$

Flexible Budget Performance Report

Particulars	Actual Results- 1	Spending variance- (1-2)	Flexible budget- 2	Activity Variance- (2-3)	Planning Budget- 3
Number of production q1	7		7		6
Number of performances q2	168		168		108
Expenses:
Actors and directors wages ($2,000 q2)	3418,000	(5,800)U	336,000	(120,000)U	216,000
Stagehand wages ($300 q2)	49,700	700 F	50,400	(18,000)U	32,400
Ticket booth personnel and ushers wages ($150 q2)	25,900	(700) U	25,200	(9,000)U	16,200
Scenery, costumes and props($18,000 q1)	130,600	(4,600) U	126,000	(18,000)U	108,000
Theater Hall Rent ($500 q2)	78,000	6,000 F	84,000	(30,000)U	54,000
Printed Programs($250 q2)	38,300	3,700 F	42,000	(15,000)U	27,000
Publicity ($2,000 q1)	15,100	(1,100)U	14,000	(2,000)U	12,000
Administrative Expenses ($32,400+1,080 q1 +$40 q2)	47,500	(8520)U	46,6800	(3,480)U	43,200
	726,900	(2620)U	724,280	(215,480)U	508,800

Activity Variances Unfavorable by $215,480($724,280-$508,800)

Activity Variances Favorable by $2,620($726,900-$724,280)

2

To determine

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties

Review the control system of handling the cost.

Answer to Problem 10.28C

Spending variance is less unfavorable balance of $2,620 if compared to the amount of costs. So, it can be said that cost is under control.

Explanation of Solution

Spending variance is compute between the expenses in flexible budget and actual total expenses. If flexible budget are lower than the actual expenses then variable is determined as unfavorable. If flexible budget are greater than the actual expenses then variable is determined as favorable.

Spending variance is less unfavorable balance of $2,620 if compared to the amount of costs. So, it can be said that cost is under control.

If unfavorable amount is compared then actors and directors wages comes first and scenery, costumes, and props come second. Unfavorable amount occur due to the high quality productions to attract the theater-goers.

3

To determine

Introduction: Variance means the difference in value which comes when actual figure and estimated or budgeted figure are compared. It is helpful in finding out the cause of difference that arises between figures and formulates the corrective measure, which helps to reduce all those difficulties

Review the figures that predict the cost of a new production or of an additional performance of particular production.

Answer to Problem 10.28C

It cannot be considered that averages will lead a proper costing of productions and performances. Averages ignores different requirement of different theatre shows by this variable nature of costs is ignored.

Explanation of Solution

Average cost is not a good indicator of cost for predicting new production or an additional performance of particular production. Average of additional performance is not taken into consideration variable nature of cost.

Different actors and different costumes are required for different theater shows. If number of actors is increased the number of costumes also increases that will increase the cost.

But if average is considered then cost per production and cost per performance can be equal for different shows. Hence it cannot be considered that averages will lead a proper costing of productions and performances. Averages ignores different requirement of different theatre shows by this variable nature of costs is ignored.