Problem:
(Flexible Budget Analysis) Ny-eve Consulting Group"s accountant has produced the following budget, actual, and variance report, showing that profits were behind expectations by almost $18,000.
Ny-eve Consulting Group: Variance Report
|
Budget
|
Actual
|
Variance
|
|
Hours sold Average price/hour
|
1,200
$100
|
1,100
$90
|
|
|
Revenue
|
$120,000
|
$99,000
|
$(21,000)
|
|
Direct labour hours
|
1,200
|
1,150
|
|
|
Average salary cost
|
$40
|
$38.50
|
|
|
Direct labour cost
|
$48,000
|
$44,275
|
$3,725
|
|
Variable overhead costs
|
|
|
|
|
"Travel: 5% of revenue
|
$6,000
|
$5,200
|
$800
|
|
Fixed overhead costs
|
$35,000
|
$36,500
|
$(1,500)
|
|
Total costs
|
$89,000
|
$85,975
|
$3,025
|
|
Operating profit
|
$31,000
|
$13,025
|
$(17,975)
|
1. What does the report tell the reader? What is its limitation?
2. Construct a flexible budget and determine the variances. How does that provide more information to users?