Comparing budgeted and actual amounts. Krause and LeMay is a public accounting firm. Its auditing department earned a departmental net income (contribution) of $603,000 during 19X1. This amount was less than the net income projected in the firm’s operating budget (shown below) even though the number of billable hours for the year exceeded the budgeted number. (Billable hours are the hours for which clients are charged. Some hours worked by the firm’s staff are not billable because the staff members are not involved in an audit job for a client.) The department’s managing partner has asked you to prepare a comparison of the actual results and the results that would have been anticipated in a flexible budget based on 48,000 billable hours, the actual number of billable hours for the year.

Instructions:

Prepare a three-column statement showing the actual income statement figures, the flexible budget based on actual billable hours, and the variance between each item.

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Billable Hours Revenues From Charges to Clients Fixed Professional Salaries Variable Professional Salaries Other Fixed Expenses Other Variable Expenses Total Departmental Expenses Departmental Contribution Income Statement Operating (Actual) Budget 48,000 42,000 $3,000,000 $2,730,000 $ 520,000 $ 500,000 1,070,000 420,000 387,000 $2,397,000 900,000 420,000 273,000 $2,093,000 $ 603,000 $ 637,000