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Flexible Budget and Variances

Barton 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.

Please see the attached file.

Budget Actual Variance
Net Revenue 8,000,000 7,600,000 400,000
Variable Costs
Fuel 160,000 157,000 3,000
Repairs and maintenance 80,000 85,000 5,000
Supplies and miscellaneous 800,000 788,000 12,000
Variable payroll 5,360,000 5,200,000 160,000
Total variable costs 6,400,000 6,230,000 170,000
Fixed Costs
Supervision 180,000 183,000 3,000
Rent 160,000 160,000
Depreciation 480,000 480,000
Other fixed costs 160,000 158,000 2,000
Total Fixed costs 980,000 981,000 1,000
Total fixed and variable costs 7,380,000 7,211,000 169,000
Operating income 620,000 389,000 231,000

Barton 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".

1. Prepare a columnar flexible budget for Burton Transportation at revenue levels of $7,600,000, $8,000,000 and $8,400,000. Use the format of the last three columns of Exhibit 8-2, pae 345, Assume that the prices and mix of products sold are equal to the budgeted prices and mix.
2. Write out the flexablebudget formula for costs as a function of revenue.
3. Prepare a condensed table showing the static budget variance, the sales -activity variance and the flexible-budget variance. Use the format of Exhibit 8-5, page 347.

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Solution Preview

Please see the attached file.

Budget Actual Variance
Net Revenue 8,000,000 7,600,000 400,000
Variable Costs
Fuel 160,000 157,000 3,000
Repairs and maintenance 80,000 85,000 5,000
Supplies and miscellaneous 800,000 788,000 12,000
Variable payroll 5,360,000 5,200,000 160,000
Total variable costs 6,400,000 6,230,000 170,000
Fixed Costs
Supervision 180,000 183,000 3,000
Rent 160,000 160,000
Depreciation 480,000 480,000
Other fixed costs 160,000 158,000 2,000
Total Fixed costs 980,000 981,000 1,000
Total fixed and variable costs 7,380,000 7,211,000 169,000
Operating income 620,000 389,000 231,000

Barton 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 ...

Solution Summary

The solution explains how to prepare a flexible budget and the related variances.

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