1- What is the advantage of using a flexible budget to evaluate Law Services' results for

last year as opposed to a static budget? Explain your answer.

2- Explain the process of creating a flexible budget for Law Services.
3- Calculate the total static budget revenue variance, the flexible budget revenue variance,
and the sales-volume revenue variance. Show your calculations.
4- Calculate the variable expense variance. Show your calculations.
5- Was the variable expense variance a flexible budget variance or a sales volume
variance? Explain your answer.
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Explanation

A flexible budget allows the attorneys to tell how much of their unfavorable variance is due to
lower-than-planned billing hours and how much is due to performance issues such as the
negotiated billed amount or variable expenses. A master budget is static and any variance must
be analyzed further to determine its cause.
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Explanation

The flexible budget revenues are calculated by multiplying the actual billed hours by the
budgeted amount per billed hour. Then the budgeted variable expense per billed hour is
multiplied by the actual billed hours. The flexible budget variable expense is subtracted from the
flexible budget revenue. The results are compared with the actual results from last year.
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Explanation

6,000 × $325 = $1,950,000 static budget revenue

5,700 × $275 = $1,567,500 actual revenue

$1,950,000 – $1,567,500 = $382,500 unfavorable static budget revenue variance

5,700 × $325 = 1,852,500 flexible budget revenue

$1,852,500 – $1,567,500 = $285,000 flexible budget variance

6,000 – 5,700 = 300 hours unfavorable sales volume

300 × $325 = $97,500 unfavorable sales volume variance

4-

Explanation

6,000 × $50 = $300,000 static budget variable expense

$300,000 – $285,000 = $15,000 favorable variable expense variance

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Explanation

5,700 × $50 = $285,000 flexible budget variable expense

$285,000 – $285,000 = $0, so the variance is a sales volume variance