Chapter 7, Problem 28E (15th Edition)

Part 1: Static and Flexible Budget.

Student Finance (StuFi) is a startup that aims to use the power of social communities to transform the student loan market. It connects participants through a dedicated lending pool, enabling current students to borrow from a schools alumni community. StuFis revenue model is to take an upfront fee of 40 basis points (0.40%) each from the alumni investor and the student borrower for every loan originated on its platform.

StuFi hopes to go public in the near future and is keen to ensure that its financial results are in line with that ambition. StuFis budgeted and actual results for the third quarter of 2014 are presented below.

Required: 1. Prepare StuFis static budget of operating income for the third quarter of 2014. 2. Prepare an analysis of variances for the third quarter of 2014 along the lines of Exhibit 7-2; identify the sales volume and flexible budget variances for operating income. 3. Compute the professional labor price and efficiency variances for the third quarter of 2014. 4. What factors would you consider in evaluating the effectiveness of professional labor in the third quarter of 2014.