1. Initially you're given the department's budgeted and actual performance. Budgeted expenses are $13,000 and actual expenses total $16,512. What's the expense variance?

2. Is this a good or bad variance, from a financial perspective?

a. Good, it contributes to profit

b. Bad, it detracts from profits

c. No answer text provided.

d. No answer text provided.

3. To delve deeper into why this variance exists and what to do about it, you suggest putting together a flexible budget... Briefly explain what a flexible budget is. What information is need to construct a flexible budget?

4. The budgeted variable cost per pound of laundry is $0.072 The actual variable cost per pound of laundry is $0.0799 The budgeted volume is 125,000 pounds The actual volume is 156,600 pounds. Budgeted fixed cost is $4,000 Actual fixed cost is $4,000 Use these figures to find the original (static) budgeted expense, the actual expense, and the flexible budget expense. (Find total expenses, not expenses per pound of laundry) What is the original (static) budgeted expense?

5. Use the information from question 4 to find actual expenses.

6. Use the information from question 4 to find flexible budget expense

7. Your friend quickly points out that the laundry provided a greater volume of services (cleaned more pounds of laundry) than expected in the original budget. How much of the total expense variance can be explained by the fact that the laundry produced more output than budgeted?

hint: think about what type of variance gives you information on how much of a total variance is caused by unexpected changes in volume.

8. How much of the expense variance can be explained by factors other than the fact the laundry produced more output than budgeted?

9. Your friend would like to help colleagues in other departments, some of which are mission centers that want to analyze revenue variances. Can your friend use the exact same formulas for revenue variances that were used for expense variances?

a. No. That's crazy. It'll never work.

b. Yes. All variances are computed basically the same way.