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 85% occupancy rate. The university's football team was on a winning streak and numerous alumni were returning to campus in October, resulting in a 97% occupancy rate during the month.

Prepare a "flexible budget" based upon a 97% occupancy rate, and calculate the total variance.

	A.	Total Variance $5,515
	B.	Total Variance $6,122
	C.	Total Variance $1,736
	D.	Total Variance $4,312
	E.	Total Variance $1,012

Answer 1

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University Inn's
Flexible Budget at 97%		A	B=A/85%*97%
Particulars	Nature	Budget (85%)	Flexible Budget (97%)
Utilities	Variable	45,000.00	51,353
Laundry	Variable	18,000.00	20,541
Food service	Variable	35,000.00	39,941
Rent/taxes	Fixed	60,000.00	60,000
Staff wages	Variable	55,000.00	62,765
Management salaries	Fixed	45,000.00	45,000.00
Water	Variable	10,000.00	11,412
Maintenance	Fixed	15,000.00	15,000.00
Total		283,000.00	306,012
Calculation of the total variance:
Particulars	Flexible Budget (97%)	Actual	Variance	Remarks
Utilities	51,353	52,000.00	647	Unfavorable
Laundry	20,541	20,000.00	(541)	Favorable
Food service	39,941	41,000.00	1,059	Unfavorable
Rent/taxes	60,000.00	60,000.00	-
Staff wages	62,765	57,000.00	(5,765)	Favorable
Management salaries	45,000.00	43,500.00	(1,500.00)	Favorable
Water	11,412	13,000.00	1,588	Unfavorable
Maintenance	15,000.00	15,200.00	200.00	Unfavorable
Total	306,011.76	301,700.00	(4,312)	Favorable
Total Variance is $ 4,312. Option D.