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 eight different productions with a total of 70 performances. For example, one of the productions was Peter Rabbit, which had a eight-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		8
Budgeted number of performances		70
Actors and directors wages	$	175,000
Stagehands wages		31,500
Ticket booth personnel and ushers wages		16,800
Scenery, costumes, and props		68,000
Theater hall rent		52,500
Printed programs		13,300
Publicity		20,800
Administrative expenses		42,000
Total	$	419,900

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 60% of the budgeted costs are fixed, 20% depend on the number of productions staged, and the remaining 20% 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 seven productions and a total of 74 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		7
Actual number of performances		74
Actors and directors wages	$	179,000
Stagehands wages		33,100
Ticket booth personnel and ushers wages		18,300
Scenery, costumes, and props		64,300
Theater hall rent		57,100
Printed programs		13,750
Publicity		19,800
Administrative expenses		40,450
Total	$	425,800

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.