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			7,360			9,800
Revenue		$	686,000		$	826,000
Professional salaries (all variable)			348,000			408,000
Other variable costs (e.g., supplies, computer services)			99,600			121,600
Fixed costs			213,000			203,200
Profit		$	25,400		$	93,200

^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.)

	Actual (7,360 hrs.)	Cost Variances		Price Variances		Flexible Budget	Sales Activity Variance		Master Budget (9,800 hrs.)
Revenue	$686,000								$826,000
Professional salaries	348,000								408,000
Other variable costs	99,600								121,600
Fixed costs	213,000								203,200
Profit	$25,400					$0			$93,200

Answer 1

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.)

	Actual (7,360 hrs.) Cost Variances Price Variances Flexible Budget Sales Activity Variance Master Budget (9,800 hrs.) Revenue $686,000 65657 F 620343 205657 U $826,000 Professional salaries 348,000 41584 U 306416 101584 F 408,000 Other variable costs 99,600 8276 U 91324 30276 F 121,600 Fixed costs 213,000 9800 U 203200 0 None 203,200 Profit $25,400 59660 U 65657 F $19403 73797 U $93,200