Question

The Little 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. The Little Theatre had tentatively planned to put on six different productions with a total of 108 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. Page 495 The Little Theatre Costs from the Planning Budget For the Year Ended December 31 108 $216,000 32,400 16,200 Budgeted number of productions Budgeted number of performances Actors and directors wages Stagehands wages Ticket booth personnel and ushers wages Scenery, costumes, and props Theater hall rent Printed programs Publicity Administrative expenses Total 108,000 54,000 27,000 12,000 43,200 $508.800

Answer 1

The Little Theatre
Flexible Budget
For the year ended December 31
Actual number of productions (q1)	7
Actual number of performances (q2)	168
	Cost per unit	Total Cost
Actors’ and directors’ wages q2 = 216000/108	2000	$336,000
Stagehands’ wages q2 =32400/108	300	$50,400
Ticket booth personnel and ushers’ wages q2 = 16200/108	150	$25,200
Scenery, costumes, and props q1 = $108,000 / 6.	18000	$126,000
Theater hall rent q2 = $54,000/ 108	500	$84,000
Printed programs q2 $27,000/ 108	250	$42,000
Publicity q1 = $12,000 / 6	2000	$14,000
Administrative expenses ($32,400 + $1,080q1 +$40q2)	calculated below	$46,680
Total expense		$724,280
$32,400 = 0.75 × $43,200; $1,080 = (0.15 × $43,200)/ 6 ; $40 = (0.10 × $43,200)/108
b)
The Little Theatre
Spending Variances
For the year ended December 31
	Actual Results (given)	Spending Variance		Flexible budget	Activity variance		Planning Budget
Actors’ and directors’ wages q2 = 216000/108	$341,800	$5,800	U	$336,000	$120,000	U	$216,000
Stagehands’ wages q2 =32400/108	$49,700	$700	F	$50,400	$18,000	U	$32,400
Ticket booth personnel and ushers’ wages q2 = 16200/108	$25,900	$700	U	$25,200	$9,000	U	$16,200
Scenery, costumes, and props q1 = $108,000 / 6.	$130,600	$4,600	U	$126,000	$18,000	U	$108,000
Theater hall rent q2 = $54,000/ 108	$78,000	$6,000	F	$84,000	$30,000	U	$54,000
Printed programs q2 $27,000/ 108	$38,300	$3,700	F	$42,000	$15,000	U	$27,000
Publicity q1 = $12,000 / 6	$15,100	$1,100	U	$14,000	$2,000	U	$12,000
Administrative expenses ($32,400 + $1,080q1 +$40q2)	$47,500	$820	U	$46,680	$3,480	U	$43,200
Total expense	$726,900	$2,620	U	$724,280	$215,480	U	$508,800

b)

The overall unfavorable spending variance is a very small percentage of the total cost, less than 0.4%, that means costs are under control. In addition, the pattern of the variances may reflect good management.The largest unfavorable variances are scenery, costumes, props, actors and directors that may warrant additional spending. These unfavorable variances are offset by favorable variances for theater hall rent and the printed programs.

c)

Average costs may not be very good indicators of the additional costs of any particular production or performance as it shows considerable over variations in costs.