Question 1: Prepare a variance analysis report based on the information in Exhibit 1.

Would this be sufficient to explain the profit shortfall to Norton at the 8 AM meeting?
Variance Analysis: Actual Results 3264000 2967610 296390 9.08% Favorable / UnFavorable F U U U

Revenues Expenses Operating profit Profit percentage

Budget 3231900 2625550 606350 18.76%

Variance 32100 342060 -309960 -9.7%

This information would not be sufficient in order to explain to Norton why their profit percentage is nearly half of what they budgeted. This variance analysis report not provide any details to why they spent more on expenses than what they budgeted.

Question 2: Prepare a variance analysis report based on the information in Exhibit 2. Actual $3,264,000 $2,029,050 938,560 $2,967,610 $ 296,390 9.1% 113 50,850 39,000 $83.69 Budget $3,231,900 $1,748,250 877,300 $2,625,550 $ 606,350 18.8% 105 47,250 35,910 $90.00 Variance 32,100 280,800 62,260 342,060 309,960 9.7 8 (F) 3600(F) 3090(F) 6.31

Revenue Less: Consultants salaries and fringes Operating expenses Total expenses Operating profit Profit % Operating Statistics Number of consultants (FTE) Hours supplied Hours billed Average billing rate

Key observation: Actual billing rate has decreased, though no. of hours billed has increased. We can also calculate 1. Billing variance (equivalent to price variance) = ($ 83.69 - $ 90.00) *39,000 = $ -246,090 (U) 2. Quantity Variance = (39,000 35910) * 90 = $278100 (F)

Question 3: Prepare a spending and volume variance analysis of operating expenses based on the additional information supplied in Exhibit 3. Exhibit 3 Expense Items: Budget Q2 2000 Actual
FIXED

Budget
VARIABLE FIXED

% Variable
VARIABLE

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- real estate Telephone Travel and entertainment Utilities Total

$22,100 45,000 25,240 23,400 2360 7240 17625 33,600 39,500 0 17240 5460 17,260 0 0 19950 $375975

0 80,000 100,960 0 9440 28,960 5875 0 0 42,100 68960 21840 0 40,000 57,800 6650 $562585

$15,100 38250 24,000 22,700 2620 7780 16830 32,200 34,700 0 17920 4940 117,260 0 0 18000 $352300

0 153000 96000 0 10480 31120 5610 0 0 36,550 71680 19760 0 38,500 56,300 6000 $525000

0% 80 80 0 80 80 25 0 0 100 80 80 0 100 100 25

Variable OH Spending Variance = ($ 562585 - $ 525000)= $ 37585 Fixed OH Volume Variance = ($ 375975 - $ 352300)= $ 23675 Both Spending and Volume variance for the overhead expenses has gone beyond the budgeted amount as not only the variable expenses have increased but there is a considerable increase in the fixed expenses

Question 4: Prepare an analysis of the revenue change, separating the volume effect (increase in number of consultants) from the productivity effect (billing percentage).
. 50,850 * 0.76 = 38,646 Revenue = No. of Consultants * 450 * Hours billed / Hours available * Average billing rate 113 * 450 * 38,646/50850 * 90 = 3,478,140 113 * 450 * 39000/50850 * 90 = 3,510,000 Variance = 3,510,000 - 3,478,140 = 31860

Question 5: Prepare an analysis of actual versus budgeted revenues, consultant expenses, and margins using the additional information supplied in Exhibit 4. Contract Actual Number of consultants (FTE) Billed hours Billed revenues 64 24,000 1,344,000 49 15,000 1,920,000 113 39,000 3,264,000 Solutions Total

Hours supplied Consultant costs

28,800 1,036,800

22,050 992,250

50,850 2,029,050

Budget Number of consultants (FTE) Billed hours Billed revenues 56 20,160 1,088,640 49 15,750 2,143,260 105 35,910 3,231,900

Hours supplied Consultant costs

25,200 756,000

22,050 992,250

47,250 1,748,250

SOLUTION: