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Calculate the flexible-budget variance, calculate the price and efficiency variance for Bouquet.com

7-30
Josh Sanchez is the chief financial officer of Bouquets.com, an Internet company that enables customers to order deliveries of flowers by accessing it's Web site. Sanchez is concerned with the efficiency and effectiveness of the finance function. He collects the following information for three finance actives in 2004:

Rate per unit of Cost Driver

Activity Activity level cost Driver Static Budget Actual
________________________________________________________________________
Receivables Output unit Remittances $0.639 $0.75
Payables Batch Invoices 2.900 2.80
Travel expenses Batch Travel claims 7.600 7.40

The output measure is the number of deliveries, which is the same as the number of remittances. The Following is additional information:

Statc-Budget
Amounts Actual Amounts
________________________________________________________________________

Number of deliveries 1,000,000 948,000
Batch size in tems of deliveries:
Payables 5 4,468
Travel expenses 500 501,587

1. Calculate the flexible-budget variance for each activity in 2004
2. Calculate the price and efficiency variance for each activity in 2004

7-31
Josh, Sanchez, CFO of Bouquets.com, engages The Hackett Group, a consulting firm specializing in benchmarking. He asks Hackett to provide benchmark data of the finance function at "word-class" retail companies ( both traditional retail and internet-based retail) Hackett;s cost benchmarks for Bouquet.com's three finance activities are

Finance Activity "Worl-Class" Cost Performance
_________________________________________________________________

Payables $0.71 per invoice
Receivables $0.10 per remittance
Travel expenses $1.58 oer travel claim

1. What new insights might arise with the Hackett benchmark data using the amounts in Exercise 7-30?
2. Assume you are in charge of travel-claim processing. What concerns might you have with Sanchez using the Hackett benchmark of $1.58 over travel claim as the key to evaluate your performance next period?

Solution Preview

Please see attached file.

The cost per remittance in Bouquet.com is very huge. This has to be checked.
The cost per invoice is less than the bench mark level. Steps can be taken to reduce further.
The cost of ...

Solution Summary

The solution uses the Hackett benchmark data for evaluating performance in the coming periods.

$2.19