Financial Management Homework Assignment #3 Dearborn Center for the Performing A
ID: 2383875 • Letter: F
Question
Financial Management
Homework Assignment #3
Dearborn Center for the Performing Arts
The director of the Dearborn Center for the Performing Arts has asked you to prepare a variance report comparing the center’s budgeted and actual revenues, expenses, and profits for FY 2015.
a)In the variance column of the Excel template, calculate each variance in dollars. Remember that favorable variances should be positive numbers and unfavorable variances should be negative numbers.
b)In the U/F column, label unfavorable variances U and favorable variances F using an IF formula. For the revenue “ticket sales,” the formula would be: =IF(E7>=0,“F”,“U”).
c)Use conditional formatting to make the U’s red. Select cells F7:F25, then choose “conditional formatting,” then “highlight cell rules ---> text that contains,” then enter “U.” From the “Format with” drop down menu, select “red text” and press “OK.”
The Dearborn Center’s director wants to know why the center spent more on program printing than anticipated in FY 2015. Use the following information to help her answer this question. The budget was based on the assumption that the center would put on 225 performances throughout the year, but it actually put on 217 performances. The expected cost of printing was 50 cents per program, but the actual cost was 60 cents per program. The center gives one program to each patron. (Hint: use the information in this question and in the variance report to find the budgeted and actual numbers of programs.) Calculate the volume, quantity, price, and total variances, and then label each variance U or F. Use the information in the variance analysis to respond to the following prompts:
a)Write a sentence explaining the quantity variance without using financial jargon.
b)Which variance most contributed to the unfavorable total variance? How do you know?
c)Were any of the variances favorable? If yes, explain why the variance(s) is/was favorable.
The Dearborn Center puts on two types of performances: theatrical and musical. The director is trying to estimate the annual cost of the theatrical performances. Several costs are attributable directly to one type of performance or the other. For the theatrical performances, equipment rental costs $22,500, advertising costs $19,000, and program printing costs $17,640. The same personnel – including performers, staff, and crew – work on both the theatrical and musical performances. The total cost of salaries and wages for personnel was $753,165. In total, personnel spent 4,000 person hours on the theatrical performances and 6,000 person hours on the musical performances. Rent and utilities cost $166,840 in total. There were 140 theatrical performances and 77 musical performances. Calculate the total annual cost of the theatrical performances. Use person hours as the cost base for allocating personnel salaries and wages, and number of performances as the cost base for allocating rent and utilities.
Do the reading assignment for the next class (Chapter 5 up to p. 176, Appendices 5-A and 5-B, “Excel & Calculator Tips 2” handout, and “New York State Lottery” handout) and then answer the following reading comprehension questions:
a)The director is considering reupholstering the theater’s seats. She says that since the reupholstered seats would last 10 years and would yield an additional $10,000 in revenues per year, she should be willing to pay up to $100,000 for the renovation. Does her argument make sense? Why or why not? (You do not need to do any calculations.)
b)The director has a choice of investing the theater’s funds at an annual interest rate of 4% compounded semiannually or quarterly. Which should she choose, and why?
Dearborn Center for the Performing Arts Variance Report FY 2015 Budget Actual Variance U/F Earned revenue Ticket sales 825,000 863,850 Contributed revenue Foundations 200,500 192,852 Corporations 160,000 173,966 Individuals 225,000 209,475 Total revenue 1,410,500 1,440,143 Expenses Performer fees 304,500 317,890 Staff salaries 279,000 283,275 Crew salaries 158,000 152,000 Rent 122,500 122,500 Utilities 42,250 44,340 Equipment rental 50,000 51,233 Advertising 37,750 32,862 Program printing 21,375 27,342 Total expenses 1,015,375 1,031,442 Profit/(Loss) 395,125 408,701 Variance Analysis Volume x Quantity x Price = Total Original Budget Volume Variance Flex Budget Quantity Variance VQA Budget Price Variance Actual Costs Total Variance (2a) Write a sentence explaining the quantity variance without using financial jargon: (2b) Which variance most contributed to the unfavorable total variance? How do you know?: (2c) Were any of the variances favorable? If yes, explain why the variance(s) was/were favorable:Explanation / Answer
2a.
Quantity variance:
It is the difference between the actual usage and the expected usage.
2b.
An unfavourable volume variance indicates that the amount of fixed manufacturing overhead costs applied (or assigned) to the manufacturer's output the budgeted or planned amount of fixed manufacturing overhead costs for the same time period.
2c.
When the actual expenditure is less than expected, then favourable variance occur.
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