# 2 to compute flexible budget variances for revenues

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2. To compute flexible budget variances for revenues and the variable costs, first calculate the budgeted cost or revenue per car, and then multiply that by the actual number of cars detailed.
7-21 The flexible budget variance for fixed costs is the same as the static budget variance, and equals \$0 in this case. Therefore, the overall flexible budget variance in income is given by aggregating the variances computed earlier, adjusting for whether they are favorable or unfavorable. This yields: FBV(Operating Income) = \$5,625F (-) \$562.50U (+) \$300F = \$5,362.50. 3. In addition to understanding the variances computed above, Stevie should attempt to keep track of the number of cars worked on by each employee, as well as the number of hours actually spent on each car. In addition, Stevie should look at the prices charged for detailing, in relation to the hours spent on each job. 4. This is just a simple problem of two equations & two unknowns. The two equations relate to the number of cars detailed and the labor costs (the wages paid to the employees). X = number of cars detailed by long-term employee Y = number of cars detailed by both short-term employees (combined) Budget: X + Y = 200 Actual: X + Y = 225 40X + 20Y = 5600 40X + 20Y = 6000 Substitution: Substitution: 40X + 20(200-X) = 5600 40X + 20(225-X) = 6000 20X = 1600 20X = 1500 X=80 X = 75 Y=120 Y=150 Therefore the long term employee is budgeted to detail 80 cars, and the new employees are budgeted to detail 60 cars each. Actually the long term employee details 75 cars (and grosses \$3,000 for the month), and the other two wash 75 each and gross \$1,500 apiece. 5. The two short-term employees are budgeted to earn gross wages of \$14,400 per year (if June is typical, and less if it is a high volume month). If this is a part-time job for them, then that is fine. If it is full-time, and they only get paid for what they wash, the excess capacity may be causing motivation problems. Stevie needs to determine a better way to compensate employees to encourage retention. This should increase customer satisfaction, and potentially revenue, because longer-term employees do a more thorough job. In addition, rather than paying the same wage per car, Stevie might consider setting quality standards and improvement goals for all of the employees.
7-22 7-32 (60 min.) Comprehensive variance analysis, responsibility issues. 1a. Actual selling price = \$82.00 Budgeted selling price = \$80.00 Actual sales volume = 7,275 units Selling price variance = (Actual sales price Budgeted sales price) × Actual sales volume = (\$82 \$80) × 7,275 = \$14,550 Favorable 1b. Development of Flexible Budget Budgeted Unit Amounts Actual Volume Flexible Budget Amount Revenues \$80.00 7,275 \$582,000 Variable costs DM Frames \$2.20/oz. × 3.00 oz. 6.60 a 7,275 48,015 DM Lenses \$3.10/oz. × 6.00 oz. 18.60 b 7,275 135,315 Direct manuf. labor \$15.00/hr. × 1.20 hrs. 18.00 c 7,275 130,950