Larry's Lawn Service Larry's Lawn Service provides lawn care in a planned community where all lawns are approximately the same size. At the end of May, Larry prepared his June budget based on mowing 500 lawns. Since all of the lawns are similar in size, Larry felt that the number of lawns mowed in a month would be the best way to measure overall activity for his business. A. A (static) planning budget Larry's Lawn Service For the Month Ended June 30 vs. actual results Larry's Lawn Service For the Month Ended June 30 Revenue/Cost Formulas Planning Budget Actual Results Compare actual and planning (Actual - Planning budget) Number of lawns (Q) 500 Number of lawns 550 ($75Q) $ 37,500 $ 43,000 $ Revenue Expenses: Wages and salaries Gasoline and supplies Equipment maintenance Office and shop utilities Office and shop rent Equipment Depreciation Insurance Total expenses Net operating income ($5,000 + $300) $ ($90) ($3Q) ($1,000) ($2,000) ($2,500) ($1,000) 20,000 4,500 1,500 1,000 2,000 2,500 1,000 32,500 5,000 Revenue Expenses: Wages and salaries Gasoline and supplies Equipment maintenance Office and shop utilities Office and shop rent Equipment Depreciation Insurance Total expenses Net operating income 23,500 5,100 1,300 950 2,000 2,500 1,200 36,550 6,450 Questions 1 What are fixed expenses? What are variable expenses? 2 What is the planned net income? What is the actual income? 3 Why is there a difference? 4 Is this because the manager sells more (i.e., 50 lawns service), or because they use gas and supplies more efficiently? Questions 5 Do you think the manager controls the gasoline costs good enough? The relevant question is ... "How much of the cost variances are due to higher activity and how much are due to cost control?" To answer the question, we need to flex the planning budget to accommodate the actual level of activity. Is it because the cost is controlled well, or is it because more lawns are mowed