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Lecture 11_03_10 - Managerial Accounting Chapter 8 part I...

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Managerial Accounting Chapter 8 part I Flexible budgets
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Illustrative example: Rick’s Hairstyling is a hair salon located in Beverly Hills. -Number of client-visits (customers served ) in a month is used as measure of activity . - Cost structure : - Wages and salaries - Hairstyling supplies - Client gratuities - Electricity - Rent - Liability insurance - Employee health insurance - Miscellaneous - For March level of activity is budgeted at 1,000 client-visits
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Planning budget for March
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Actual result for March
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What was the reasons for the $21,230 actual net income?
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A flexible budget shows what net income should have been:
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BE 8.1 During May, the company’s activity was 105 diving- hours. Prepare a flexible budget for that level of activity
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Pudget Sound Divers Flexible Budget For the Month Ended May 31 Actual diving-hours 105 Revenue ($365.00q) $38,325 Expenses: Wages and salaries ($8,000 + $125.00q) 21,125 Supplies ($3.00q) 315 Equipment rental ($1,800 + $32.00q) 5,160 Insurance ($3,400) 3,400 Miscellaneous ($630 + $1.80q)       819 Total expense   30,819 Net operating income $ 7,506
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