Vaughan Speed Clean
Question 1. Vaughan Speed Clean — budgeting
In order to calculate manager’s bonus we need to look at the flexible budget to compare actual profit with budget profit target.
Flexible budget Actual Variance
Revenue $108,100 (23 x $10 x 470) $120,555 $12,455 F
Variable expenses (50% of revenues) 54,020 60,277 6,227 U
Fixed expenses 53,870 55,000 1,180 U
Total expenses 107,870 115,277 7,457 U
Profit $230 $5,278 $5,048 F
The actual profit meets the budgeted target of $230, therefore the manager of Jane-HW7 location is entitled to at least $1,000 bonus.
The total bonus amount = $1,000 + ($5,278 - $230) /10 x $1 = $1,504.80
Budgeted Actual
Cars washed 18,400 12,690
Price per car wash $10 $9.50
Variable cost $5 $4.75
Contribution margin $5 $4.75
Static budget variance = Actual results x Static budget amount
(27 x 470 x $4.75) – ( 23 x 800 x $5) = $60,277.50 - $92,000 = $31, 722.50 U
Flexible budget variance = Actual sales in units x (actual CM – Budgeted CM)
12,690 x ($4.75 - $5) = $3,172.50 U
Sales volume variance = (Actual sales quantity - Static budget sales quantity) X Budgeted CM
(12,690 – 18,400) x $5 = $28,550 U
Proof:
Static budget variance = Flexible budget variance x Sales volume variance
$3,172.50 + $28,550 = $ 31,722.50 U
Price variance = (27 x 470) x ($9.5 - $10) = $6,345 U
Quantity variance = (27 x 470 – 23 x 800) x $10 = $57,100 U
As we can see from the above calculations, budget variances can result from two sources - the things that can be controlled and things that cannot. Uncontrollable factors are often external and in our case they are reduced hours of good weather. The Static budget does not take in consideration the weather factor and all the unfavourable variables reflect that.
There are a few controllable variances, which are within manager’s responsibility. They are: price, number of cars washed per hour, and fixed costs. Change in price reduced the contribution margin which resulted in
In order to calculate manager’s bonus we need to look at the flexible budget to compare actual profit with budget profit target.
Flexible budget Actual Variance
Revenue $108,100 (23 x $10 x 470) $120,555 $12,455 F
Variable expenses (50% of revenues) 54,020 60,277 6,227 U
Fixed expenses 53,870 55,000 1,180 U
Total expenses 107,870 115,277 7,457 U
Profit $230 $5,278 $5,048 F
The actual profit meets the budgeted target of $230, therefore the manager of Jane-HW7 location is entitled to at least $1,000 bonus.
The total bonus amount = $1,000 + ($5,278 - $230) /10 x $1 = $1,504.80
Budgeted Actual
Cars washed 18,400 12,690
Price per car wash $10 $9.50
Variable cost $5 $4.75
Contribution margin $5 $4.75
Static budget variance = Actual results x Static budget amount
(27 x 470 x $4.75) – ( 23 x 800 x $5) = $60,277.50 - $92,000 = $31, 722.50 U
Flexible budget variance = Actual sales in units x (actual CM – Budgeted CM)
12,690 x ($4.75 - $5) = $3,172.50 U
Sales volume variance = (Actual sales quantity - Static budget sales quantity) X Budgeted CM
(12,690 – 18,400) x $5 = $28,550 U
Proof:
Static budget variance = Flexible budget variance x Sales volume variance
$3,172.50 + $28,550 = $ 31,722.50 U
Price variance = (27 x 470) x ($9.5 - $10) = $6,345 U
Quantity variance = (27 x 470 – 23 x 800) x $10 = $57,100 U
As we can see from the above calculations, budget variances can result from two sources - the things that can be controlled and things that cannot. Uncontrollable factors are often external and in our case they are reduced hours of good weather. The Static budget does not take in consideration the weather factor and all the unfavourable variables reflect that.
There are a few controllable variances, which are within manager’s responsibility. They are: price, number of cars washed per hour, and fixed costs. Change in price reduced the contribution margin which resulted in