Question

Roberds Tech is a for-profit vocational school. The school bases its budgets on two measures of activity (i.e., cost drivers), namely student and course. The school uses the following data in its budgeting:

	Fixed element per month			Variable element per student			Variable element per course
Revenue	$	0		$	228		$	0
Faculty wages	$	0		$	0		$	2,960
Course supplies	$	0		$	38		$	26
Administrative expenses	$	25,800		$	13		$	38

In March, the school budgeted for 1,770 students and 74 courses. The school's income statement showing the actual results for the month appears below:

Roberds Tech
Income Statement
For the Month Ended March 31
Actual students		1,670
Actual courses		77
Revenue	$	341,340
Expenses:
Faculty wages		207,950
Course supplies		55,590
Administrative expenses		51,562
Total expense		315,102
Net operating income	$	26,238

Required:

Prepare a flexible budget performance report showing both the school's activity variances and revenue and spending variances for March. Label each variance as favorable (F) or unfavorable (U). (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

• Requirement

	Actual Results	Revenue & Spending Variances		Flexible Budget	Activity Variances		Planning Budget
Courses	77			77			74
Students	1,670			1,670			1,770
Revenues	$               341,340.00	$          39,420.00	Unfavourable	$      380,760.00	$        22,800.00	Unfavourable	$      403,560.00
Expenses:
Faculty Wages	$               207,950.00	$          19,970.00	Favourable	$      227,920.00	$           8,880.00	Unfavourable	$      219,040.00
Course Supplies	$                 55,590.00	$            9,872.00	Favourable	$        65,462.00	$           3,722.00	Favourable	$        69,184.00
Administrative expenses	$                 51,562.00	$            1,126.00	Favourable	$        50,436.00	$           1,186.00	Favourable	$        51,622.00
Total Expenses	$               315,102.00	$          28,716.00	Favourable	$      343,818.00	$        14,768.00	Favourable	$      358,586.00
Net Operating Income	$                 26,238.00	$          10,704.00	Unfavourable	$        36,942.00	$           8,032.00	Unfavourable	$        44,974.00

--Working

	Actual Results	Flexible Budget	Planning Budget
Courses	77	77	74
Students	1670	1670	1770
Revenues	341340	=1670*228	=1770*228
Expenses:
Faculty Wages	207950	=2960*77	=2960*74
Course Supplies	55590	=+(38*1670)+(26*77)	=+(38*1770)+(26*74)
Administrative expenses	51562	=25800+(13*1670)+(38*77)	=25800+(13*1770)+(38*74)

Conceptual notes:

#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'

#2: Spending Variance = Difference between 'Actual data' and 'Flexible Budget data'

#3: Activity Variance = Difference between 'Flexible Budget data' and 'Static/Planned Budget data'.

* Favourable Variance in case of Revenues occurs when:

>Actual revenues are MORE than Flexible budget revenues [Spending Variance]

>Flexible budget revenues are MORE than Static/Planned budget revenues [Activity Variance]

* Unfavourable Variance in case of Revenues occurs when:

>Actual revenues are LESS than Flexible budget revenues [Spending Variance]

>Flexible budget revenues are LESS than Static/Planned budget revenues [Activity Variance]

* Favourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are LESS than Flexible budget expense/costs [Spending Variance]

>Flexible budget expenses/costs are LESS than Static/Planned budget expenses/costs [Activity Variance]

* Unfavourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are MORE than Flexible budget expense/costs [Spending Variance]

>Flexible budget expenses/costs are MORE than Static/Planned budget expenses/costs [Activity Variance]