Chapter 9, Problem 28C

To determine

Flexible budget performance report:A flexible budget shows the true difference between the actual cost and revenue and budgeted cost and revenue. The budgeted value is adjusted by preparing a flexible budget which is prepared based on actual level of activity.

1. The preparation of flexible budget performance report for the year.

2. Whether you would be pleased with how well costs were controlled during the year.

3. How accurate the cost formulas figures would be for predicting the cost of a new production or of an additional performance.

Answer to Problem 28C

Solution:

The Little Theatre Flexible Budget Performance Report For the Year Ended December 31
	Actual Results	Spending Variance	Flexible Budget	Activity Variance	Planning Budget
Number of productions (q1)	7		7		6
Number of performances (q2)	168		168		108
Actors and directors wages ($2,000q2)	$341,800	$5,800 U	$336,000	$120,000U	$216,000
Stagehands wages ($300q2)	$49,700	$700 F	$50,400	$18,000 U	$32,400
Ticket booth personnel and usher wages ($150q2)	$25,900	$700 U	$25,200	$9,000 U	$16,200
Scenery. Costumes, and props ($18,000q1)	$130,600	$4,600 U	$126,000	$18,000 U	$108,000
Theater hall rent ($500q2)	$78,000	$6,000 F	$84,000	$30,000 U	$54,000
Printed programs ($250q2)	$38,300	$3,700 F	$42,000	$15,000 U	$27,000
Publicity ($2,000q1)	$15,100	$1,100 U	$14,000	$2,000 U	$12,000
Administrative expenses ($32,400+$1,080q1+$40q2)	$47,500	$820 U	$46,680	$3,480 U	$43,200
Total expense	$726,900	$2,620 U	$724,280	$215,480	$508,800

2. If I was a board of director of the company, I would not be pleased by the performance report which shows an overall unfavorable spending variance of $2,620 and an unfavorable activity variance of $215,480. The activity variance is prepared based upon the planned activity, so an activity variance is understandable but the spending variances shows high amount of unfavorable and favorable variances which probably need to be investigated. Small amount of variance is possible since it is highly impossible to predict the exact amount of spending.

3. The cost formula of little theatre would not so accurate in predicting the cost of new production or additional performance as there is high amount of between the flexible budget and actual results in the flexible budget performance report.

Explanation of Solution

1. A flexible budget is prepared based on actual activity. The costs are adjusted according to the actual results by multiplying the cost formulas with the actual number of activity. The cost formulas of Little Theatre are ascertained as follows:

Given:The cost for the current year’s planning budget appear below:

The Little Theatre Costs from the Planning Budget For the Year Ended December 31
Budgeted number of productions	6
Budgeted number of performances	108
Actors and directors wages	$216,000
Stagehands wages	$32,400
Ticket booth personnel and usher wages	$16,200
Scenery. Costumes, and props	$108,000
Theater hall rent	$54,000
Printed programs	$27,000
Publicity	$12,000
Administrative expenses	$43,200
Total	$508,800

Data concerning the actual cost appear below:

The Little Theatre Actual Costs For the Year Ended December 31
Actual number of productions	7
Actual number of performances	168
Actors and directors wages	$341,800
Stagehands wages	$49,700
Ticket booth personnel and usher wages	$25,900
Scenery. Costumes, and props	$130,600
Theater hall rent	$78,000
Printed programs	$38,300
Publicity	$15,100
Administrative expenses	$47,500
Total	$726,900

Conclusion

Conclusion:$ 215,480The difference between the flexible budget and planning budget is called an activity variance while the difference between the flexible budget actual results is called revenue and spending variance. The favorability of variance depends upon whether the variance is improving the net income or decreasing it. If the variance is increasing the net income, it is a favorable variance and if the variance is decreasing the net income, it is an unfavorable variance.