Question

Mental Health provides counseling and stress management programs for overworked students.

Fixed costs are: rent for the building (that includes utilities and maintenance); and the Director's salary. These total $20,000 per month.

Each counseling session uses 60 minutes of therapist time and $3 in materials. Each stress management session uses 20 minutes of trainer time and $3 in materials.

Mental Health hires therapists and trainers on a freelance contract bases and does not provide them any benefits. The hourly wage rate for therapists is $40 per hour and stress management trainers is $30 per hour. They are paid for actual services rendered.

At the end of December 2019, the Director projected they would sell 1000 counseling sessions at $120 each and 10,000 stress management sessions at $25 each in 2020.

A) Complete The Here For You Clinic Annual Static (Projected) Budget for 2020 below

Revenue

Total Cost

Profit

Revenue Breakdown

Counseling Services

Stress Management Services

Cost Breakdown

         Fixed cost

Counselor services

Stress Management Trainer Services

          Supplies

Jump into your time machine and fast forward to December 31. As 2020 comes to a close, the director sees that they actually provided 1000 counseling services. 100 of those services were provided during their “Holidays in July” promotion offering the sessions for $75 each. The remainder were sold at full price.

Actually provided 12,500 stress reduction sessions. 4,000 of these were sold during the July promotion at $15 each. The remainder were sold at $25.

Therapist and stress trainer contracted hourly rates remained the same throughout the year. The spending on fixed costs were exactly as projected.

B)   What is Mental Health's flexible budget amount for: revenue, fixed cost, supplies, counselors, and stress trainers?

C) What is Mental Health's actual revenue, total cost, variable cost and profit?

D) Examine the Revenue Variance. What is the total Revenue Variance? What is the Revenue Price Variance? What is the Revenue Volume Variance?

E) Examine the Cost variance. What is the total Cost Variance? Of the Variable Cost variance, what is the Volume variance and what is the Management variance?

F) Interpret Mental Health's budget variance results for 2020. What contributed most to the change in profit? What recommendations would you make for 2021?

Answer 1

ans A Master Budget	in $
Revenue (1000*120)+(10000*25)	370000
Total Cost (1000*40)+(10000*20/60*30)+(3*1000)+(10000*3)+20000	193000
Profit	177000
Revenue Breakdown
Counseling Services	120000
Stress Management Services	250000
Cost Breakdown
Fixed cost	20000
Counselor services	40000	(1000*40)
Stress Management Trainer Services	100000	(10000*20/60*30)
Supplies	33000	(11000*3)
Ans B
Flexible Budget
Revenue	432500
Total cost	225500
Profit	207000
Revenue Breakdown
Counseling Services	120000	(1000*120)
Stress Management Services	312500	(12500*25)
	432500
Cost Breakdown
Fixed cost	20000
Counselor services	40000	(1000*40)
Stress Management Trainer Services	125000	(12500*20/60*30)
Supplies	40500	(1000*3)+(12500*3)
Total cost	225500
ans c
Toatl revneue (100*75)+(900*120)+(4000*15)+(8500*25)	388000
Variable cost	205500
Contribution margin	182500
Fixedc cost	20000
Net operating income	162500
working
Variable cost
Supplies	40500	(1000*3)+(12500*3)
Counselor services	40000	(1000*40)
Stress Management Trainer Services	125000	(12500*20/60*30)
Total variable cost	205500
ans d
Total revenue variance
388000-370000	18000	F
Total revenue price variance
388000-432500	44500	U
Revenue volume variance	62500	F
432500-370000
ans e
Total cost variance
225500-193000	32500	U
Variable cost variance
205500-205500	$0	None
Volumne variance
205500-173000 (variable budgeted)	32500
ans f
Change in the profit was due to incraese in revenue due to stress section
Change in cost due to increase in Stress Management Trainer Services
The budget should be revised in terms of volume
If any doubt please comment