The Houston Chamber Orchestra presents a series of concerts throughout the year.

Question

The Houston Chamber Orchestra presents a series of concerts throughout the year. Budgeted fixed costs total $300,000 for the concert season; variable costs are expected to average $5 per patron. The orchestra uses flexible budgeting.

Required:

A. Prepare a flexible budget that shows the expected costs of 8,000, 8,500, and 9,000 patrons

B. Construct the Orchestra's flexible budget formula.

C. Assume that 8,700 patrons attended concerts during the year just ended, and actual costs were; variable, $42,000; fixed, $307,500. Evaluate the orchestra's financial performacne by computing variances for variable costs and fixed costs.

Any help or suggestions would be greatly appreciated. Thanks.

Explanation / Answer

atrons Variable cost at $5 Fixed cost Total B. C

.

Variable cost Fixed cost Total

8,000 $ 40,000 300,000 $340,000

8,500 $ 42,500 300,000 $342,500

9,000 $ 45,000 300,000 $345,000

Total budgeted cost = (number of patrons x $5) + $300,000

Budget* $ 43,500 300,000 $343,500

Actual $ 42,000 307,500 $349,500

Variance $1,500F 7,500U $6,000U *Variable budget: 8,700 patrons x $5

The variances reveal that the orchestra exceeded its budget for 8,700 patrons by $6,000.

The overall performance was not that bad, however, as the variances (individually and in total) are small in both dollar- and percentage-term

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