Question

KM Flexible Budgeting Case (LO9-1, LO9-2, LO9-3) Theodore's Theatre is a nonprofit organization devoted to staging plays for children. The theater has a very small full-time professional administrative staff. Through a special arrangement with the actors' union, actors and directors rehearse without pay and are paid only for actual performances. Theodore's Theatre had tentatively planned to put on six different productions with a total of 50 performances. For example, one of the productions was Peter Rabbit, which had a six-week run with three performances on each weekend. The costs from the current year's planning budget appear below. Theodore's Theatre Costs from the Planning Budget For the Year Ended December 31 Budgeted number of productions Budgeted number of performances Actors and directors wages Stagehands wages Ticket booth personnel and where wages Scenery, costumes, and props Theater hall rent Printed programs Publicity Administrative expenses Total $ 150,000 25,000 16.000 54,000 40.000 13.500 17.400 40.000 $363,900 Some of the costs vary with the number of productions, some with the number of performances, and some are fixed and depend on neither the number of productions nor the number of performances. The costs of scenery, costumes. props, and publicity vary with the number of productions, it doesn't make any difference how many times Peter Rabbit is performed, the cost of the scenery is the same Likewise, the cost of publicizing a play with posters and radio commercials is the same whether there are 10, 20, or 30 performances of the play. On the other hand, the wages of the actors, directors, stagehands, ticket booth personnel, and the very with the number of performances. The greater the number of performances, the higher the wage costs will be. Similarly, the costs of renting the has and printing the programs will vary with the number of performances. Administrative expenses are more difficult to pin down, but the best estimate is that approximately 70% of the budgeted costs are fed, 20% depend on the number of productions staged, and the remaining 10% depend on the number of performances a li! Next >

Answer 1

Answer with working is given below

Theodore's Theatre Flexible Budget For the year ended December 31 Actual number of productions Actual number of performances Actors' and directors' wages Stagehands' wages Ticket both personnel and ushers wages Scenery, Costumes and props Theatre hall rent Printed program Publicity Administrative expenses Total Expense $162,000 $27,000 $17,280 $45,000 $43,200 $14,580 $14,500 $46,784 $370,344 Administrative expenses Fixed Production stage based - 20% performance based - 10% $33,600 $8,000 $5,184 $46,784 Total Theodore's Theatre Spending Variance For the year ended December 31 Actual Flexible Results Spending Variance Budget Actual number of productions Actual number of performances F Actors' and directors' wages Stagehands' wages Ticket both personnel and ushers wages Scenery, Costumes and props Theatre hall rent Printed program Publicity Administrative expenses Total Expense $156,000 $26,600 $17,500 $50,300 $44,600 $13,950 $16,400 $46,4501 $371,800 $6,000 $400 $220 $5,300 -$1,400 $630 $1,900 $334 $1,456 $162,000 $27,000 $17,280 $45,000 $43,200 $14,580 $14,500 $46,784 $370,344 F U U True Statements are #1, #2 and #4 A Static budget though useful for planning is not appropriate for evaluating how costs are controlled Flexible budget is suitable for controlling costs since the activity level is adjusted in flexible budget Management by Exception helps the management in controlling significant variance Variance analysis cycle helps to control the actual cost by comparing it with standard cost according to budget Answer is Option 1) If the actual rental cost of theatre is more than the budget, the variance is unfavourable There is no limit on cost drivers to use in budget If company actual net income is greater than net income of flexible budget, the overall variance of revenue and spending need not be favourable. Revenue can be favourable and spending can be unfavourable overall net income can still be higher than flexible budget Variance is favourable and significant it should not be ignored. Reasons should be identified for the same