Question

University 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. Variance University Inn Budget v. Actual Expense Report For the Month Ending October 31, 20x8 Actual Budget Utilities 81,800 $ 72,000 Laundry 32,890 28,800 Food service 63,000 56,000 Rent/taxes 100,800 100,800 Staff wages 88,700 85,000 Management salaries 70,000 72,000 Water 24,024 16,000 Maintenance 28,090 24,000 489,304 $ 454,600 (9,800) (4,090) (7,000) (3,700) 2,000 (8,024) (4,090) (34,704) $ 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 efficienctly or inefficiently run. Comment on specific costs, and note why a flexible budget can improve

Answer 1

UNIVERSITY INN BUDGET VS ACTUAL EXPENSE REPORT FOR THE MONTH ENDING OCTOBER 31 ,20X8
	ACTUAL [A]	BUDGET [B]	VARIANCE [B-A]
Utilities	81800	82800   [72000*.92/.80]	1000 F
Laundry	32890	33120   [28800*.92/.80]	230 F
Food service	63000	64400   [56000*.92/.80]	1400 F
Rent/taxes	100800	100800	0 NA
staff wages	88700	97750   [85000*.92/.80]	9050 F
management salaries	70000	72000	2000 F
water	24024	18400   [16000*.92/.80]	-5624 U
maintenance	28090	24000	-4090 U
Total	489304	493270	3966 F

Inn is performing efficiently as there is a favorable budget variance of 3966 .Since Flexible budget is based on actual results (that is budgeted cost for actual output ) ,it provides more accurate results .