Software Associates

Assignment Question 1:
Variance Analysis report based on information in Exhibit 1 Actual Revenue = $ 3,264,000 Budgeted Revenue = $ 3,231,900 Total Revenue Variance = $3,264,000 - $3,231,900 = $32,100 (Favourable) Actual Expenses= $ 2,967,610 Budgeted Expenses=$ 2,625,550 Total Expense Variance=$$ 2,967,610-$ 2,625,550=342,060 (Unfavourable) Actual Profits= $ 296,390 Budgeted Profits=$ 606,350 Total Profit Variance=$ 296,390-$ 606,350= ($ 309,960) (Unfavourable) The information given does not provide clear insight and is not sufficient to explain profit shortfall to Norton at the 8 AM meeting.

Assignment Question 2:
Variance Analysis report based on Exhibit 2

Actual Consulting Revenue = $ 3,264,000

Budgeted Consulting Revenue = $ 3,231,900

Total Consulting Revenue Variance = Actual Revenue Budgeted Revenue = (Actual hours*Avg billing rate) (Budgeted hours*Budgeted billing rate) = 39000*83.69 35910*90 = $32,010 (Favourable) Actual Hours billed = 39,000 Budgeted hours billed = 35,910

Hours billed variance = (Actual Budgeted hours billed)*budgeted average billing rate = (39000 35910)*90 = 3090*90 = $278,100 (Favourable)

Actual Average billing rate = $83.69 Budgeted Average billing rate = $90.00 Average billing rate variance = (Actual Budgeted average billing rate)*Actual hours billed = (83.69-90)*39000 = $246090 (Unfavourable) Sum of Hours variance and average billing rate variance is equal to Consulting Revenue variance. Thus, $278,100 - $246,090 = $32,010

Assignment Question 3:
Spending and Volume Variance analysis of operating expenses based on Exhibit 3 Flexible Budget accommodates the jumps in fixed costs once output exceeds the capacity of any resource as well as pure variable costs, and mixtures of fixed and variable cost. Total Actual Expenses = $938,560 Total Budgeted Expenses = $877,300 Total indirect expense variance = $938,560 - $877,300 = $61,260 Variable Expense 0 153000 96000 0 10480 31120 5610 0 0 36550 71680 19760 0 38500 56300 6000 525000 Fixed Expense 15100 38250 24000 22700 2620 7780 16830 32200 34700 0 17920 4940 117260 0 0 18000 0 352300

Expense Items 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

Budget 15100 191250 120000 22700 13100 38900 22440 32200 34700 36550 89600 24700 117260 38500 56300 24000 877300

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

In the above table, Variable Expense = Budget Expense* %variable

Fixed Expense = Budget Expense Variable Expense Total Variable Expense = $525,000 and Total Fixed Expense = $352,300 Total Variable Expense if for the budgeted number of consultants 105 Thus, Variable Expense per consultant = $525000/105 = $5000 Flexible budget at actual volume = Total Fixed Expense + Total Actual Variable Expense Total Actual Variable Expense = Variable Expense per consultant * Actual consultants = 5000*113 = $565,000 Flexible budget at actual volume = $352,300 + $565000 = $917,300

Spending Variance = Actual indirect expenses Flexible budget at actual volume = $938,560 - $917,300 = $21,260 (Unfavourable)

Volume Variance = (Actual Quantity Budgeted Quantity)*Expected variable Expense per unit = (113-105)*5000 = $40,000 (unfavourable)

Total indirect expense variance = $61,260 = Spending Variance + Volume Variance = $21,260 + $40,000 = $61,260 Flexible Budget identifies those expenses that the manager is expected to reduce when actual activity volumes are decreasing, and the expenses that can increase beyond the static budget when actual production or sales exceeds the budgeted quantity.

Assignment Question 4: Analysis of revenue change, separating the volume effect from the productivity effect
Volume effect (Increase in the number of consultants): Actual consultant hours supplied 50850 Expected Expected consultant billing % hours supplied 47250 76% Expected billing rate 90 variance

246240

Favourable

Productivity effect (billing percentage) Actual Actual billing consultant % hours supplied 50850 76.7% Expected billing % 76% Expected billing rate 90 variance

31860

Favourable Revenue Quantity variance: 278100 (Favourable)

Assignment Question 5: Analysis of actual versus budgeted revenues, consultant expenses, and margins
Actual Contract 24000 56 1344000 28800 1036800 36 83.3% 307200 22.9 Solutions 15000 128 1920000 22050 992250 45 68% 927750 48.3 Total 39000 83.69 3264000 50850 2029050 39.90 76.7% 1234950 37.8

Billed hours Billing rate Billed revenues Hours supplies Consultant cost Hourly cost/consultant Billed % Gross margin Gross margin %

Budget Contract 20160 54 1088640 25200 756000 30 80 322640 30.6 Solutions 15750 136.08 2143260 22050 992250 45 71.4 1151010 53.7 Total 35910 90 3231900 47250 1748250 37 76 1483650 45.9

Billed hours Billing rate Billed revenues Hours supplies Consultant cost Hourly cost/consultant Billed % Gross margin Gross margin %

So, we get: Contract 48000 Solutions (121200) Total Unfavourable (73200)

Pure billing rate price variance Mix variance Revenue rate variance

Favourable

Unfavourable

(138240) (90240)

Unfavourable (34560) Unfavourable (155760)

Unfavourable (172800) Unfavourable (246000)

Unfavourable Unfavourable

Pure consultant cost price variance Mix variance Consultant expense rate variance

Contract 172800

Solutions Unfavourable -

Total 172800

Unfavourable

(25200) 147600

Favourable

(25200) 147600

Favourable Unfavourable

Unfavourable -