Question

Fanning Educational Services had budgeted its training service charge at $70 per hour. The company planned to provide 21,000 hours of training services during 2019. By lowering the service charge to $52 per hour, the company was able to increase the actual number of hours to 22,100.

Required

1. Determine the sales volume variance, and indicate whether it is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

2. Determine the flexible budget variance, and indicate whether it is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

3. Did lowering the price of training services increase revenue?

Variance

Volume variance

Flexible budget variancec.

Was the decision profitable?

Answer 1

a. Sales volume variance = Budgeted rate x (Actual hours - Budgeted hours) = $70 x (22100 - 21000) = $70 x 1100 = $77000 F

b. Flexible budget variance = Actual hours x (Actual rate - Budgeted rate) = 22100 x ($52 - $70) = 22100 x $18 = $397800 U

c. Budgeted revenue = 21000 hours x $70 = $1470000

Actual revenue = 22100 hours x $52 = $1149200

Shortfall in revenue = $1470000 - $1149200 = $320800

No, lowering the price of training services did not increase revenue. Thus, the decision was not profitable.