ACCT

University Inn's most recent monthly expense analysis report revealed significant cost overruns. The man- ager was asked to explain the deviations. Below is the "budget v. actual" expense report for the month in question.

Spreadsheet f x

A B C D

1 University Inn

Budget vs. Actual Expense Report For The Month Ending October 31, 20X7

2 Actual Budget Variance

3 Utilities $ 52,000 $ 45,000 $ (7,000)

4 Laundry 20,000 18,000 (2,000)

5 Food service 41,000 35,000 (6,000)

6 Rent/taxes 60,000 60,000 -

7 Staff wages 57,000 55,000 (2,000)

8 Management salaries 43,500 45,000 1,500

9 Water 13,000 10,000 (3,000)

1 0 Maintenance 15,200 15,000 (200)

1 1 $301,700 $283,000 $(18,700)

The Inn has observed that utilities, water, food service, staff wages, and laundry costs all vary with activity. The other costs are fixed.

The preceding budget was based upon an assumed 80% occupancy rate. The university's football team was on a winning streak and numerous alumni were returning to campus in October, resulting in a 96% occu- pancy rate during the month.

Prepare a "flexible budget" based upon a 96% occupancy rate, and identify whether the Inn is being effi- ciently or inefficiently run. Comment on specific costs, and note why a flexible budget can improve perfor- mance evaluations.

Flexible budgets for performance evaluation B-22.04

Spreadsheet f x

A B C D

1 University Inn

Flexible Budget v. Actual Expense Report For the Month Ending October 31, 20X7

2 Actual Budget Variance

3 Utilities $ 52,000

4 Laundry 20,000

5 Food service 41,000

6 Rent/taxes 60,000

7 Staff wages 57,000

8 Management salaries 43,500

9 Water 13,000

1 0 Maintenance 15,200

1 1 $301,700

1 2

B-22.04 Flexible budgets for performance evaluation