The Munchkin Theatre is a nonprofit organization devoted to staging plays for children. The theatre has a very small full-time professional administrative staff. Through a special arrangement with the actors? union, actors and directors rehearse without pay and are paid only for actual performances.

The costs from the current year?s planning budget appear below. The Munchkin Theatre had tentatively planned to put on five different productions with a total of 60 performances. For example, one of the productions was Peter Rabbit, which had five performances.

Some of the costs vary with the number of productions, some with the number of performances, and some are fixed and depend on neither the number of productions nor the number of performances. The costs of scenery, costumes, props, and publicity vary with the number of productions. It doesn?t make any difference how many times Peter Rabbit is performed; the cost of the scenery is the same. Likewise, the cost of publicizing a play with posters and radio commercials is the same whether there are 10, 20, or 30 performances of the play. On the other hand, the wages of the actors, directors, stagehands, ticket booth personnel, and ushers vary with the number of performances.

The greater the number of performances, the higher the wage costs will be. Similarly, the costs of renting the hall and printing the programs will vary with the number of performances. Administrative expenses are more difficult to pin down, but the best estimate is that approximately 75% of the budgeted costs are fixed, 15% depend on the number of productions staged, and the remaining 10% depend on the number of performances.

After the beginning of the year, the board of directors of the theatre authorized changing the theatre?s program to four productions and a total of 64 performances. Actual costs were higher than the costs from the planning budget. (Grants from donors and ticket sales were also correspondingly higher, but are not shown here.) Data concerning the actual costs appear below:

Required:

Your team should prepare the analyses required below and then use the results to discuss the remaining issues. All team members should know and agree on the quantitative analyses as well as on the issues and be prepared to present to the class.

1. Prepare a flexible budget for The Munchkin Theatre based on the actual activity of the year.

2. Prepare a report that summarizes the flexible budget variances for all expense items.

3. The president of the board of directors of the theatre has asked for your opinion as to how well costs were controlled during the year. What would be your response? Explain.

4. The president of the board has asked you to report how accurately you think these figures would predict the cost of a new production or of an additional performance of a particular production. What will be your response? You realize that the cost formulas provide figures for the average cost per production and average cost per performance.

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The Munchkin Theatre Costs From the Planning Budget For the Year Ended December 31 Budgeted number of productions Budgeted number of performances 60 Actors' and directors' wages $144,000 Stagehands' wages 27,000 Ticket booth personnel and ushers' wages 10,800 Scenery, costumes, and props 43,000 Theatre hall rent 45,000 Printed programs 10,500 Publicity 13,000 Administrative expenses 43,200 Total $336,500 The Munchkin Theatre Actual Costs For the Year Ended December 31 Actual number of productions Actual number of performances Actors' and directors' wages Stagehands' wages 4 64 $148,000 28,600 Ticket booth personnel and ushers' wages 12,300