| Flexible Budget Variances To answer Rick's questions concening the discrepancies between budgeted and actual costs. Victoria broke down the variances shown in Exhibit 94 into two types of varlances activity variances and revenae and spending variances. We explain how she did it in the next two sections Activity Variances 09-2 Prepare a report showing activity variances Part of the discrepancy between the budgeted profit and the actual profit is due to the fact that the actual level of activity in March was higher than expected. How much of this discrepancy was due to this single factor? Victoria prepared the report in Exhibit 9-6 to answer this question. In that report, the flexible budget based on the actual level of activity for the period is compared to the planning budget from the beginning of the period. The flexible budget shows what should have happened at the actual level of actiyity, whereas the planning budget shows what should have happened at the badgeted level of activity. Therefore, the differences between the flexible budget and the planning budget show what shoukd have happened solely because the actual level of activity differed from what had been expected. For example, the flexible budget based on 1,100 client-visits shows revemue of S198,000 $180 per client-visit x 1,100 client-visits). The planning budget based on 1,000 client-visits shows revenue of $180,000( $180 per cliems-visit x 1,000 client-visits). Because the salon had 100 more client-visits than anticipated in the budget, actual revenue should have been higher than budgeted revenue by $18,000 ($198,000-$180,000) This activity variance is shown on the report as $18.000 F (avorable). Similarly, the flexible budget based on I, 100 client-visits shows electricity costs of S1,610 ( $1,500+ S0.10 per client-visit x 1,100 client-visits). The planning badget based on 1,000 elient-visits shows electricity costs of $1,600 31,500 + 5010 per client-visit x 1,000 client-visits). Because the salon had 100 more client-visits than anticipated in the budget, actiual electricity costs should bave been higher than budgeted oosts by 310 $1,610-$1,600). The activity variance for electricity is shown on the repoet as $10 (unfavorable). Noe that in this case, the label "unfavorable" may be a little misleading. Costs should be $10 higher for electricity simply because business was up by 100 clsen-visits; therefore, is this variamce really unfavorable if it was a necessary cost of serving more customers For reasons such as this, we would like to caution you against assuming that unfivorable variances always indicate bad performance and favorable vanances always indicaie good Activity Variances from Comparing the Flesxible Badget Based on Actual Activity to the Planning Budget Rick's Hairstyling Activity Variances For the Month Ended March 31 FlexblePlanning Activity Budget Budget Variances 1,100 | Flexible Budget Variances To answer Rick's questions concening the discrepancies between budgeted and actual costs. Victoria broke down the variances shown in Exhibit 94 into two types of varlances activity variances and revenae and spending variances. We explain how she did it in the next two sections Activity Variances 09-2 Prepare a report showing activity variances Part of the discrepancy between the budgeted profit and the actual profit is due to the fact that the actual level of activity in March was higher than expected. How much of this discrepancy was due to this single factor? Victoria prepared the report in Exhibit 9-6 to answer this question. In that report, the flexible budget based on the actual level of activity for the period is compared to the planning budget from the beginning of the period. The flexible budget shows what should have happened at the actual level of actiyity, whereas the planning budget shows what should have happened at the badgeted level of activity. Therefore, the differences between the flexible budget and the planning budget show what shoukd have happened solely because the actual level of activity differed from what had been expected. For example, the flexible budget based on 1,100 client-visits shows revemue of S198,000 $180 per client-visit x 1,100 client-visits). The planning budget based on 1,000 client-visits shows revenue of $180,000( $180 per cliems-visit x 1,000 client-visits). Because the salon had 100 more client-visits than anticipated in the budget, actual revenue should have been higher than budgeted revenue by $18,000 ($198,000-$180,000) This activity variance is shown on the report as $18.000 F (avorable). Similarly, the flexible budget based on I, 100 client-visits shows electricity costs of S1,610 ( $1,500+ S0.10 per client-visit x 1,100 client-visits). The planning badget based on 1,000 elient-visits shows electricity costs of $1,600 31,500 + 5010 per client-visit x 1,000 client-visits). Because the salon had 100 more client-visits than anticipated in the budget, actiual electricity costs should bave been higher than budgeted oosts by 310 $1,610-$1,600). The activity variance for electricity is shown on the repoet as $10 (unfavorable). Noe that in this case, the label "unfavorable" may be a little misleading. Costs should be $10 higher for electricity simply because business was up by 100 clsen-visits; therefore, is this variamce really unfavorable if it was a necessary cost of serving more customers For reasons such as this, we would like to caution you against assuming that unfivorable variances always indicate bad performance and favorable vanances always indicaie good Activity Variances from Comparing the Flesxible Badget Based on Actual Activity to the Planning Budget Rick's Hairstyling Activity Variances For the Month Ended March 31 FlexblePlanning Activity Budget Budget Variances 1,100