Question

Aunt Janes 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.

	Actual	Budget	Variance
Utilities	85,678.00	71,300.00	(14,378.00)
Laundry	31,538.00	26,400.00	(5,138.00)
Food Service	59,800.00	54,000.00	(5,800.00)
Rent/taxes	95,000.00	95,000.00	-
Staff Wages	91,500.00	88,700.00	(2,800.00)
Management Salaries	65,000.00	68,000.00	3,000.00
Water	23,690.00	17,000.00	(6,690.00)
Maintenance	31,400.00	28,000.00	(3,400.00)
	483,606.00	448,400.00	(35,206.00)

The Inn has observed that utilities, water, food service, staff wages, and laundry costs all vary with activity. The other costs are fixed. The budget reflected above was based upon an assumed 80% occupancy rate. The university’s football team was on a winning streak and numerous alumni were returning to campus in October, resulting in a 92% occupancy rate during the month.

Prepare a “”flexible budget”” based upon a 92% occupancy rate, and identify whether the Inn is being efficiently or inefficiently run. Comment on specific costs, and note why a flexible budget can improve performance evaluations.

Hint - Use the table above and leave "actual" column unchanged. Calculate new budgeted and variance columns.

Answer 1

SOLUTION:

AUNT JANES INN'S
BUDGET VS ACTUAL EXPENSE REPORT
	A)ACTUAL	B)BUDGET	C)VARIANCE(B-A)
UTILITIES	85678	81995(71300*0.92/0.80)	(3683) UNFAVORABLE
LAUNDRY	31538	30360(26400*0.92/0.80)	(1178) UNFAVORABLE
FOOD SERVICE	59800	62100(54000*0.92/0.80)	2300 FAVORABLE
RENT/TAXES	95000	95000	- N/A
STAFF WAGES	91500	102005(88700*0.92*0.80)	10505 FAVORABLE
MANAGEMENT SALARIES	65000	68000	3000 FAVORABLE
WATER	23690	19550(17000*0.92*0.80)	(4410) UNFAVORABLE
MAINTENANCE	31400	28000	(3400) UNFAVORABLE
TOTAL	483606	487010	3404 FAVORABLE

INN IS PERFORMING EFFECIENTLY AS THERE IS FAVORABLE BUDGET VARIANCE OF 3404.SINCE FLEXIBLE BUDGET IS BASED ON ACTUAL RESULTS (THAT IS BUDGETED COST FOR ACTUAL OUTPUT),IT PROVIDES MORE ACCURATE RESULTS.

KINDLY UPVOTE AND THANKS IN ADVANCE