KM Flexible Budgeting Case [LO9-1, LO9-2, LO9-3]

Theodore's Theatre is a nonprofit organization devoted to staging plays for children. The theater 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.

Theodore's Theatre had tentatively planned to put on six different productions with a total of 50 performances. For example, one of the productions was Peter Rabbit, which had a six-week run with three performances on each weekend. The costs from the current years planning budget appear below.

Theodore's Theatre Costs from the Planning Budget For the Year Ended December 31
Budgeted number of productions		6
Budgeted number of performances		50
Actors and directors wages	$	105,000
Stagehands wages		20,500
Ticket booth personnel and ushers wages		11,500
Scenery, costumes, and props		48,600
Theater hall rent		35,500
Printed programs		11,250
Publicity		12,600
Administrative expenses		46,000
Total	$	290,950

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 doesnt 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 70% of the budgeted costs are fixed, 15% depend on the number of productions staged, and the remaining 15% depend on the number of performances.

After the beginning of the year, the board of directors of the theater authorized expanding the theaters program to five productions and a total of 54 performances. Not surprisingly, actual costs were considerably 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:

Theodore's Theatre Actual Costs For the Year Ended December 31
Actual number of productions		5
Actual number of performances		54
Actors and directors wages	$	109,000
Stagehands wages		22,100
Ticket booth personnel and ushers wages		13,000
Scenery, costumes, and props		44,900
Theater hall rent		40,100
Printed programs		11,700
Publicity		11,600
Administrative expenses		44,450
Total	$	296,850

Required:

1. Prepare a flexible budget for Theodore's Theatre based on the actual activity of the year.

2. Prepare a report for the year that shows the spending variances for all expense items.

1)Prepare a flexible budget for Theodore's Theatre based on the actual activity of the year.

Theodore's Theatre
Flexible Budget
For the Year Ended December 31
Actual number of productions
Actual number of performances
Actors' and directors' wages
Stagehands' wages
Ticket booth personnel and ushers' wages
Scenery, costumes, and props
Theater hall rent
Printed programs
Publicity
Administrative expenses
Total expense

2)

Prepare a report for the year that shows the spending variances for all expense items. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Theodore's Theatre
Spending Variances
For the Year Ended December 31
	Actual Results	Spending Variances		Flexible Budget
Number of productions	5
Number of performances	54
Actors' and directors' wages	$109,000
Stagehands' wages	22,100
Ticket booth personnel and ushers' wages	13,000
Scenery, costumes, and props	44,900
Theater hall rent	40,100
Printed programs	11,700
Publicity	11,600
Administrative expenses	44,450
Total expense	$296,850