RUNNING HEAD: BUDGET ANALYSIS

Budget analysis

Name

Institution
BUDGET ANALYSIS

The higher sales volume variance was indeed favorable due to a higher number of parties

that were budgeted. It helped offset the unfavorable cost variable from the variable costs and thus

increased the results in the net revenue recorded over the period (Zeller & Metzger, 2013). The

flexible budget variance indicates the actual sales revenue amounting to $39560 recorded by the

Perfect Parties during the period (Yahya-Zadeh, 2012). The number of parties held was more

than what was budgeted earlier on and hence sales revenue increased as well beyond the

budgeted figure. The unit cost per party was $450 and was fixed.

The only way to increase revenue was to increase the number of parties held. Therefore

the activity variance for revenue was favorable by $5400. Due to increased party activities

beyond the budgeted figure, the variable costs that constituted the party supplies, party worker

wages and food costs increased leading to unfavorable variance. However, the fixed costs such

as administrative, equipment and rent remained constant. However, the net operating income was

favorable (Noreen, 2014).

Though the variable costs for party supplies increased, the cost per unit increase was

favorable compared to the budgeted amount. The spending and revenue variances were thus

positive and favorable. The cost of administration had a non-variance but the cost per unit of

difference between the revenue and spending variance was positive implying the administrative

work was carried out more efficiently.

The net operating income had unfavorable outcome when we used the difference between

the revenue and actual spending variance. It simply implies that they had selling prices whose

outcome were lower and recorded a higher cost per unit of the party held. Inefficiency increased

the cost per unit and hence lower operating cost per unit. The Perfect Party accountant should be

more concerned because the little small static variance of the budget with a contribution margin
BUDGET ANALYSIS

of $45000 unfavorable is riskier and consist of the favorable sales volume variance of the

contribution margin of $2880 and unfavorable variance with a selling price of $10080. Analysis

of these questions will assist the accountant to determine the actions that should be undertaken

Li, J., (Choi & Cheng, 2014).

The main reason for the static budget variance being unfavorable is the $1840 caused by

an increase in per unit volume from the actual $41400 to the budgeted $36000. The variable cost

was greatly reduced by the operating management relative to the flexible budget. The reducing

cost of variable cost per unit could indicate efficient management. On the other hand, it can be

due to the reduced quality of materials that greatly affects the volume per unit. The static budget

variance can be as a result of offsetting the total sales volume variance with the total flexible

budget variance. The variances will offset each other exactly. Further analysis of the variance

components reveals major deviations from the plan. Actual variable cost went up from $2.00 to

$3.96 leading to an unfavorable flexible cost of the variance of about $29220. The increase could

be caused by increased direct material prices (Boyabatlı & Toktay, 2015).

According to statistics, the fee for a basic party can start with $500 while those that prefer

extravagant parties can go with $3000. Our cost per party was about $450 and which is within

the industry specifics. According to White Hutchinson Leisure and learning group, the party

planning for children is a multibillion-dollar industry that has witnessed increase annual

spending in the recent past (Zeller & Metzger, 2013).

BUDGET ANALYSIS

Reference

Boyabatlı, O., Leng, T., & Toktay, L. B. (2015). The impact of budget constraints on flexible vs.

dedicated technology choice. Management Science, 62(1), 225-244.

Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial accounting for managers.

New York: McGraw-Hill/Irwin.

Yahya-Zadeh, M. (2012). Comprehensive variance analysis based on ex post optimal

budget. Academy of Accounting and Financial Studies Journal, 16, 65.

Zeller, T. L., & Metzger, L. M. (2013). Good Bye Traditional Budgeting, Hello Rolling Forecast:

Has the Time Come?. American Journal of Business Education, 6(3), 299-310.

Li, J., Choi, T. M., & Cheng, T. E. (2014). Mean variance analysis of fast fashion supply chains

with returns policy. IEEE Transactions on Systems, Man, and Cybernetics:

Systems, 44(4), 422-434.

APPENDIX
 BUDGET ANALYSIS

Perfect Parties

Birthday Party Division - Flexible Budget Performance Report

For the month ended June 30

Revenue and
Planning Activity Flexible Actual
Particulars spending
Budget Variances Budget results
variances

Nos of
80 92 92
parties

$5,400.0 $1,840.
Revenues $36,000.00 F $41,400.00 U
0 00

Expenses:

$1,080.0 $368.0
Food cost $7,200.00 U $8,280.00 U $8,648.00
0 0

Party $276.0
$3,200.00 $480.00 U $3,680.00 F $3,404.00
Supplies 0

Party
$368.0
worker $6,400.00 $960.00 U $7,360.00 U $7,728.00
0
wages

Administrat $200.0
$3,700.00 $0.00 None $3,700.00 F $3,500.00
ive salaries 0

Equipment
Non
depreciatio $1,200.00 $0.00 None $1,200.00 $0.00 $1,200.00
e
n

Non
Rent $5,000.00 $0.00 None $5,000.00 $0.00 $5,000.00
e

Total $2,520.0 $260.0 $29,480.0

$26,700.00 U $29,220.00 U
Expenses 0 0 0

Net
$2,880.0 $2,100. $10,080.0
Operating $9,300.00 F $12,180.00 U
0 00 0
Income