Question

You have been employed as a customer relations representative for a firm. Your firm encourages the employees of customers to visit your firm's plant to see how products are made. One of your responsibilities is to take customer-employee visitors to lunch. The budget allowance for these lunches is $6 per visitor. When the budget for November was prepared, it was estimated that 60 customer-employees would visit your plant that month. Early in December, the following information appeared in the performance report for your department:

	Budget	Actual	Variance	Variance %
Customer lunches	$360	$430	$70 U	19.4% U

Your records indicate that during November you actually took 72 visitors to lunch.   

a. Explain how the budget amount was determined.

b. Evaluate the above performance report.

c. Prepare a more appropriate performance report.

Answer 1

a)budget amount = budgeted number of visitors * budgeted amount per person

= 60*$6

= $360

the above performance report shows adverse variance as actual expenditure is more than the budgeted expenditure because number of visitor in actual increases from budgeted number.but it doesnot reveal the proper variance.

budgeted actual

visitor expenditure visitor expenditure

60 6 = $360 72 5.97 =$430

price variance = $6- $5.97)*72 = $2.16

usage variance = 60-72)*6 = 48