Corpuz and Associate provide a variety of legal services to its clients. The firms attorneys each have the authority to negotiate billing rates with their clients. Corpuz and Associate want to manage its operations more effectively and established a budget at the beginning of last year. The budget included total hours billed, amount billed per hour, and variable expense per hour. Unfortunately, the firm failed to meet its budgeted goals for last year. The results are shown below.

Actual Budget

Total hours billed. 5,700 6,000

Amount billed/hour P275 P325

The budgeted variable expense per hour is P50, and the actual total variable expense was P285,000. There is disagreement among the attorneys over the reasons that the firm failed to meet its budgeted goals.

REQUIRED:

What is the advantage of using a flexible budget to evaluate Corpuz and Associates results for last year as opposed to a static budget? Explain your answer. (10 points)

Explain the process of creating a flexible budget for Corpuz and Associate. (10 points)