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Problem 1 Law Services Inc. provides a variety of legal services to its clients. The firm's attorneys each have the authority to negotiate billing rates
Problem
Law Services Inc. provides a variety of legal services to its clients. The firm's attorneys each have the
authority to negotiate billing rates with their clients. Law Services wants 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.
The budgeted variable expense per hour is $ and the actual total variable expense was $
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 Law Services' results for last year as
opposed to a static budget? Explain your answer.
Explain the process of creating a flexible budget for Law Services.
Calculate the total static budget revenue variance, the flexible budget revenue variance, and the
salesvolume revenue variance. Show your calculations.
a Calculate the variable expense variance. Show your calculations.
b Was the variable expense variance a flexible budget variance or a sales volume variance? Explain
your answer.
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