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Unformatted text preview: Chapter 8 Flexible Budgets and Performance Analysis In-Class Exercise Smith provides lawn care services to residents in a large upscale lake community. He estimates for planning purposes that he will move 500 lawns during June. Since all of the lawns are of similar size, Smith felt that the number of lawns mowed in a month would be the best way to measure overall activity for his business. Smiths actual results for June compared to the static budget follow: Discussion Questions: (1) For those variances that are unfavorable, has Smith done a poor job controlling costs? (2) For those variances that are favorable, has Smith done a good job controlling costs? (3) Actual activity is above planned activity, so shouldnt the variable costs be higher if actual activity is higher? (4) So what is the relevant question here? Revenue/Cost Static Actual Formulas Budget Results Variances Number of lawns (Q) 500 550 Revenue ($75Q) 37,500 $ 43,000 $ Expenses: Wages and salaries ($5,000 + $30Q) 20,000 $ 23,500 $ Gasoline and supplies ($9Q) 4,500 5,100 Equipment maintenance ($3Q)...
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- Spring '10