Question

University Inn's most recent monthly expense analysis report revealed significant cost overruns. The manager was asked to explain the deviations. Below is the "budget v. actual" expense report for the month in question.

University Inn
Budget vs. Actual Expense Report
For The Month Ending October 31, 20X7
	Actual	Budget	Variance
Utilities	$52,000	$45,000	($7,000)
Laundry	20,000	18,000	($2,000)
Food service	41,000	35,000	($6,000)
Rent/taxes	60,000	60,000	$0
Staff wages	57,000	55,000	($2,000)
Management salaries	43,500	45,000	$1,500
Water	13,000	10,000	($3,000)
Maintenance	15,200	15,000	($200)
Total	$301,700	$283,000	($18,700)

The Inn has observed that utilities, water, food service, staff wages, and laundry costs all vary with activity. The other costs are fixed.

The preceding budget was based upon an assumed 70% occupancy rate. The university's football team was on a winning streak and numerous alumni were returning to campus in October, resulting in a 91% occupancy rate during the month.

Prepare a "flexible budget" based upon a 91% occupancy rate, and calculate the total variance.

Answer 1

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ANSWER:

Flexible Budget

Particulars	Flexible Budget (A) (@ 91% Occupancy rate)	Actual (B)	Variance (A - B)
Utilities	58,500 [45,000 * (91% / 70%)]	52,000	6,500	Favorable
Laundry	23,400 [18,000 * (91% / 70%)]	20,000	3,400	Favorable
Food Service	45,500 [35,000 * (91% / 70%)]	41,000	4,500	Favorable
Rent/taxes	60,000	60,000	N/A
Staff wages	71,500 [55,000 * (91% / 70%)]	57,000	14,500	Favorable
Management salaries	45,000	43,500	1,500	Favorable
Water	13,000 [10,000 * (91% / 70%)]	13,000	0
Maintenance	19,500 [15,000 * (91% / 70%)	15,200	4,300	Favorable
Total	336,400‬	301,700	34,700‬	Favorable