Sam Chase is the Finance Director of Flowers.co.ke, an internet company that enables customers to order home deliveries of flowers by accessing its website. Flowers.co.ke has a network of florists (‘strategic partners’) who do the physical delivery of flowers. Flowers.co.ke has a group of representatives that continually visit florists and nurseries. This group monitors product and service quality and explores new products or new partners.

Chase is concerned with the efficiency and effectiveness of the finance function at Flowers.co.ke.

He collects the following information for three finance activities in 2022:

The budgeted amounts are based on an analysis of costs in past periods at Flowers.co.ke. The output measure is the number of deliveries, which is assumed to be the same as the number of remittances. Debtors is an output-unit-level-driven cost, whereas creditors and travel and expense are batch-driven costs.
Required

1 Prepare a flexible-budget-based report explaining difference between budgeted and actual costs for each of the three finance activities in 2022. Comment on the results.
2 Why might the variances computed in requirement 1 pertain to efficiency but not effectiveness?
3 How might Chase monitor the effectiveness of the three finance processes in this exercise?

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Budgeted total cost Finance activity Activity measure of activity Budgeted total volume of activity Actual cost of process Actual total volume of activity Creditors Debtors Number of invoices KSh580 000 Number of remittances 639 000 Travel and expenses Number of expense reports 15 200 200 000 1 000 000 2.000 KSh594 020 212 150 711 000 948 000 13 986 1 890