Question

K&B is a small management consulting firm. Last month, the firm billed fewer hours than expected, and, as expected, profits were lower than anticipated.

	Reported Income Statement				Master Budget
Billable hoursa			7,250			9,250
Revenue		$	675,000		$	815,000
Professional salaries (all variable)			342,500			402,500
Other variable costs (e.g., supplies, computer services)			98,500			120,500
Fixed costs			207,500			201,000
Profit		$	26,500		$	91,000

^aThese are hours billed to clients. They are fewer than the number of hours worked because there is nonbillable time (e.g., slack periods, time in training sessions) and because some time worked for clients is not charged to them.

Required:

Prepare a profit variance analysis for K&B. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

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	Actual	Cost Variance	Price Variance	Flexible Budget	Sales Activity Variance	U/F	Master Budget
		(Acutal-Flexible)	(Acutal-Flexible)
Revenue	675000		36216 F	638784	176216	U	815000
Cost:
-Professional Salaries	342500	27027 U		315473	87027	F	402500
-Other Variable Costs	98500	4054 U		94446	26054	F	120500
-Fixed Costs	207500	6500 U		201000	0		201000
Total Cost	648500	37581 U	36216 F	610919	113081	F	724000
Profit	26500	37581 U	36216 F	27865	63135	U	91000
Working:
	Master Budget	Flexible Budget	Actual	Working-Flexible Budget
Hours	9250	7250	7250
Revenue	815000	638784	675000	815000/9250*7250
Cost:
-Professional Salaries	402500	315473	342500	402500/9250*7250
-Other Variable Costs	120500	94446	98500	120500/9250*7250
-Fixed Costs	201000	201000	207500	201000/9250*7250
Total Cost	724000	610919	648500
Profit	91000	27865	26500