Purchase Solution

# Burton Transportation Company: Flexible and Static Budgets

Not what you're looking for?

8-A1

Burton Transportation Company's general manager reports quarterly to the company president on the firm's operating performance. The company uses a budget based on detailed expectations for the forthcoming quarter. The general manager has just received the condensed quarterly performance report shown in Exhibit 8-10.

Although the general manager was upset about not obtaining enough revenue, she was happy that her cost performance was favorable; otherwise, her net operating income would be even worse.

The president was totally unhappy and remarked: "I can see some merit in comparing actual performance with budgeted performance, because we can see whether actual revenue coincided with our best guess for budget purposes. But, I can't see how this performance report helps me evaluate cost control performance."

Exhibit 8-10
Burton Transportation
Operating Performance Report
Second Quarter, 20X1

Budget Actual Variance
Net revenue \$8,000,000 \$7,600,000 \$400,000 U
Variable Costs
Fuel \$ 160,000 \$ 157,000 \$ 3,000 F
Repairs and maintenance 80,000 85,000 5,000 U
Supplies and miscellaneous 800,000 788,000 12,000 F
Variable payroll 5,360,000 5,200,000 160,000 F
Total variable costs* \$6,400,000 \$6,230,000 \$180,000 F
Fixed Costs
Supervision \$ 180,000 \$ 183,000 \$ 3,000 U
Rent 160,000 160,000 -
Depreciation 480,000 480,000 -
Other fixed costs 160,000 158,000 2,000 F
Total fixed costs \$ 980,000 \$ 981,000 \$ 1,000 U
Total fixed and variable costs \$7,380,000 \$7,211,000 \$169,000 F
Operating income \$ 620,000 \$ 389,000 \$231,000 U

U = Unfavorable
F = Favorable
*For purposes of this analysis, assume that all these costs are totally variable with respect to sales revenue. In practice, many are mixed and have to be subdivided into variable and fixed components before a meaningful analysis can be made. Also, assume that the prices and mix of services sold remain unchanged.

1. Prepare a columnar flexible budget for Burton Transportation at revenue levels of \$7,200,000, \$8,000,000 and \$8,800,000. Assume that the prices and mix of products sold are equal to the budgeted prices and mix.

2. Express the flexible budget for costs in formula form.

3. Prepare a condensed table showing the static-budget variance, the sales-activity variance, and the flexible-budget variance.

##### Solution Summary

Your tutorial is in Excel, attached, showing a flexible budget for the three levels, a full-featured flexible budget analysis and the cost formula.

Solution provided by:
###### Education
• BSc, University of Virginia
• MSc, University of Virginia
• PhD, Georgia State University
###### Recent Feedback
• "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
• "Thank, this is more clear to me now."
• "Awesome job! "
• "ty"
• "Great Analysis, thank you so much"

##### Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

##### Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

##### Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

##### Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

##### Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.