2 Flexible budget preparation LO2 Garcia and Buffet, a local CPA firm, has budge
ID: 2341355 • Letter: 2
Question
2 Flexible budget preparation LO2 Garcia and Buffet, a local CPA firm, has budgeted $100000 in fixed expenses per month for the tax department. It has also budgeted variable costs of $5 per tax return prepared for supplies, $35 per return for labour, and $10 per return for computer time. The firm expects revenue from tax return preparation to be $300000, based on 2000 tax returns at $150 each. During the current month, 1850 tax returns were actually prepared, at an average fee of $147 each. Actual variable costs were $9100 for supplies, $65000 for labour, and $18000 for computer time. Actual fixed costs were $100000 Required Prepare a flexible budget for the tax department of Garcia and Buffet for the current month.Explanation / Answer
Answer:
Flexible Budget can be prepared as under
Garcia and Buffet
Flexible Budget
Per unit
Total
Amount
Revenue (1850*150)
150
277500
Variable Expenses:
0
Supplies (1850*5)
5
9250
Labor (1850*35)
35
64750
Computer time (1850*10)
10
18500
Total Variable Expense
92500
Contribution Margin
185000
Fixed Expense
100000
Net Income
85000
Now on the based on flexible budget we can prepare Flexible Budget performance report as under
Garcia and Buffet
Flexible Budget performace report
Flexible
Budget
Actual
Variane
Favorable/
(unfaorable)
Revenue (1850*150)
277500
271950
5550
U
Variable Expenses:
Supplies (1850*5)
9250
9100
150
F
Labor (1850*35)
64750
65000
250
U
Computer time (1850*10)
18500
18000
500
F
Total Variable Expense
92500
92100
400
F
Contribution Margin
185000
179850
5150
U
Fixed Expense
100,000
100,000
0
Net Income
85,000
79,850
5150
U
Garcia and Buffet
Flexible Budget
Per unit
Total
Amount
Revenue (1850*150)
150
277500
Variable Expenses:
0
Supplies (1850*5)
5
9250
Labor (1850*35)
35
64750
Computer time (1850*10)
10
18500
Total Variable Expense
92500
Contribution Margin
185000
Fixed Expense
100000
Net Income
85000
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