Question

• Question 3 – The owner of Rick’s Hairstyling, prepared the March budget and also the March actual that appears below. Net income is higher than budget, however, based on the additional 100 visits (1,100 actual vs 1,000) net income is expected to be higher. Prepare a flexible budget at the 1,100 visit level and compare revenue, expenses and operating income actual to the flexible budget.

Rick’s Hairstyling Planning Budget For the Month Ended March 31
Budgeted client-visits (quantity - q)...........................	1,000
Revenue ($180.00q)..................................................	$180,000
Expenses:
Wages and salaries ($65,000 +$37.00q)...............	102,000
Hairstyling supplies ($1.50q)..................................	1,500
Client gratuities ($4.10q).........................................	4,100
Electricity ($1,500 + $0.10q)...................................	1,600
Rent ($28,500)........................................................	28,500
Liability insurance ($2,800).....................................	2,800
Employee health insurance ($21,300)....................	21,300
Miscellaneous ($1,200 + $0.20q)...........................	1,400
Total expense............................................................	163,200
Net operating income.................................................	$ 16,800

Notice, Rick created formulas for his revenue and his expenses.

• The hairstyling supplies and client gratuities are variable costs.
• The wages and salaries, electricity, and miscellaneous are mixed costs.(variable portion shown $/q)
• The rent, liability insurance, and employee health insurance are fixed costs.

Rick’s Hairstyling Actual Income Statement For the Month Ended March 31
Actual client-visits......................................................	1,100
Revenue.....................................................................	$194,200
Expenses:
Wages and salaries................................................	106,900
Hairstyling supplies.................................................	1,620
Client gratuities.......................................................	6,870
Electricity.................................................................	1,550
Rent.........................................................................	28,500
Liability insurance...................................................	2,800
Employee health insurance....................................	22,600
Miscellaneous.........................................................	2,130
Total expense............................................................	172,970
Net operating income.................................................	$ 21,230

Answer 1

Flexible Budget
For the Month Ended March 31
	Actual	Flexible Budget	Variance			Calculation
Actual client-visits	1,100	1100
Revenue	$194,200	198000	$3,800	U		180*1100
Expenses:
Wages and salaries	106,900	105700	1,200	U		65000+(37*1100)
Hairstyling supplies.	1,620	1650	30	F		1.5*1100
Client gratuities..	6,870	4510	2,360	U		4.1*1100
Electricity.	1,550	1610	60	F		1500+(.1*1100)
Rent.	28,500	28500	0	None
Liability insurance.	2,800	2800	0	None
Employee health insurance.	22,600	21300	1,300	U
Miscellaneous.	2130	1420	710	U		1200+(.2*1100)
Total expense.	172,970	167,490	5,480	U
Net operating income.................................................	$21,230	$30,510	9,280	U
The company did not perform well in actual than expected.
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