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Software Associates

Assignment Question 1:
Variance Analysis report based on information in Exhibit 1 Actual Revenue = $ 3,264,000 Budgeted Revenue = $ 3,231,900 Total Revenue Variance = $3,264,000 - $3,231,900 = $32,100 (Favourable) Actual Expenses= $ 2,967,610 Budgeted Expenses=$ 2,625,550 Total Expense Variance=$$ 2,967,610-$ 2,625,550=342,060 (Unfavourable) Actual Profits= $ 296,390 Budgeted Profits=$ 606,350 Total Profit Variance=$ 296,390-$ 606,350= ($ 309,960) (Unfavourable) The information given does not provide clear insight and is not sufficient to explain profit shortfall to Norton at the 8 AM meeting.

Assignment Question 2:
Variance Analysis report based on Exhibit 2

Actual Consulting Revenue = $ 3,264,000

Budgeted Consulting Revenue = $ 3,231,900

Total Consulting Revenue Variance = Actual Revenue – Budgeted Revenue = (Actual hours*Avg billing rate) – (Budgeted hours*Budgeted billing rate) = 39000*83.69 – 35910*90 = $32,010 (Favourable) Actual Hours billed = 39,000 Budgeted hours billed = 35,910

Hours billed variance = (Actual – Budgeted hours billed)*budgeted average billing rate = (39000 – 35910)*90 = 3090*90 = $278,100 (Favourable)

100 .260 Variable Expense 0 153000 96000 0 10480 31120 5610 0 0 36550 71680 19760 0 38500 56300 6000 525000 Fixed Expense 15100 38250 24000 22700 2620 7780 16830 32200 34700 0 17920 4940 117260 0 0 18000 0 352300 Expense Items Advertising and Promotion Administrative and support staff Information Systems Depreciation Dues and subscriptions Education and training Equipment leases Insurance Professional services Office expenses Office supplies Postage Rent .300 = $61.300 Total indirect expense variance = $938.560 .$877.real estate Telephone Travel and entertainment Utilities Total Budget 15100 191250 120000 22700 13100 38900 22440 32200 34700 36550 89600 24700 117260 38500 56300 24000 877300 %Variable 0 80 80 0 80 80 25 0 0 100 80 80 0 100 100 25 In the above table.00 Average billing rate variance = (Actual – Budgeted average billing rate)*Actual hours billed = (83. Total Actual Expenses = $938. $278.010 Assignment Question 3: Spending and Volume Variance analysis of operating expenses based on Exhibit 3 Flexible Budget accommodates the jumps in fixed costs once output exceeds the capacity of any resource as well as pure variable costs.69 Budgeted Average billing rate = $90.Actual Average billing rate = $83.560 Total Budgeted Expenses = $877.090 = $32. Variable Expense = Budget Expense* %variable . and mixtures of fixed and variable cost. Thus.$246.69-90)*39000 = $246090 (Unfavourable) Sum of Hours variance and average billing rate variance is equal to Consulting Revenue variance.

300 = $21.000 and Total Fixed Expense = $352.$917.260 = Spending Variance + Volume Variance = $21.Fixed Expense = Budget Expense – Variable Expense Total Variable Expense = $525.560 .300 + $565000 = $917. Assignment Question 4: Analysis of revenue change. Variable Expense per consultant = $525000/105 = $5000 Flexible budget at actual volume = Total Fixed Expense + Total Actual Variable Expense Total Actual Variable Expense = Variable Expense per consultant * Actual consultants = 5000*113 = $565. and the expenses that can increase beyond the static budget when actual production or sales exceeds the budgeted quantity. separating the volume effect from the productivity effect Volume effect (Increase in the number of consultants): Actual consultant hours supplied 50850 Expected Expected consultant billing % hours supplied 47250 76% Expected billing rate 90 variance 246240 Favourable .260 Flexible Budget identifies those expenses that the manager is expected to reduce when actual activity volumes are decreasing.260 + $40.000 Flexible budget at actual volume = $352.000 = $61.300 Spending Variance = Actual indirect expenses – Flexible budget at actual volume = $938.260 (Unfavourable) Volume Variance = (Actual Quantity – Budgeted Quantity)*Expected variable Expense per unit = (113-105)*5000 = $40.000 (unfavourable) Total indirect expense variance = $61.300 Total Variable Expense if for the budgeted number of consultants 105 Thus.

7 Total 35910 90 3231900 47250 1748250 37 76 1483650 45.7% Expected billing % 76% Expected billing rate 90 variance 31860 Favourable Revenue Quantity variance: 278100 (Favourable) Assignment Question 5: Analysis of actual versus budgeted revenues. consultant expenses.8 Billed hours Billing rate Billed revenues Hours supplies Consultant cost Hourly cost/consultant Billed % Gross margin Gross margin % Budget Contract 20160 54 1088640 25200 756000 30 80 322640 30.3% 307200 22.6 Solutions 15750 136.69 3264000 50850 2029050 39.90 76.9 Solutions 15000 128 1920000 22050 992250 45 68% 927750 48.Productivity effect (billing percentage) Actual Actual billing consultant % hours supplied 50850 76.08 2143260 22050 992250 45 71. and margins Actual Contract 24000 56 1344000 28800 1036800 36 83.9 Billed hours Billing rate Billed revenues Hours supplies Consultant cost Hourly cost/consultant Billed % Gross margin Gross margin % .7% 1234950 37.3 Total 39000 83.4 1151010 53.

we get: Contract 48000 Solutions (121200) Total Unfavourable (73200) Pure billing rate price variance Mix variance Revenue rate variance Favourable Unfavourable (138240) (90240) Unfavourable (34560) Unfavourable (155760) Unfavourable (172800) Unfavourable (246000) Unfavourable Unfavourable Pure consultant cost price variance Mix variance Consultant expense rate variance Contract 172800 Solutions Unfavourable - - Total 172800 Unfavourable (25200) 147600 Favourable - - (25200) 147600 Favourable Unfavourable Unfavourable - .So.