The Munchkin Theater 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. The costs from the current years planning budget appear below. The Munchkin Theater had tentatively planned to put on six different productions with a total of 90 performances. For example, one of the productions was Peter Rabbit, which had five performances.

The Munchkin Theater Costs from the Planning Budget For the Year Ended December 31
Budgeted number of productions		6
Budgeted number of performances		90
Actors and directors wages		202,500
Stagehands wages		28,800
Ticket booth personnel and ushers wages		22,500
Scenery, costumes, and props		37,800
Theater hall rent		49,500
Printed programs		14,400
Publicity		12,600
Administrative expenses		43,200
Total		411,300

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 doesn't 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, 20% depend on the number of productions staged, and the remaining 10% depend on the number of performances.

After the beginning of the year, the board of directors of the theater authorized changing the theater's program to five productions and a total of 100 performances. Actual costs were 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:

The Munchkin Theater Actual Costs For the Year Ended December 31
Actual number of productions		5
Actual number of performances		100
Actors and directors wages		218,400
Stagehands wages		31,900
Ticket booth personnel and ushers wages		25,570
Scenery, costumes, and props		36,780
Theater hall rent		56,900
Printed programs		15,720
Publicity		12,350
Administrative expenses		41,940
Total		439,560

1.Prepare a flexible budget for The Munchkin Theater based on the actual activity for the year. Use the planning budget and other information provided above to develop the appropriate cost formulas used in the flexible budget. (In your flexible budget, show the cost formulas you used to determine your budgeted amounts)

2.Prepare a report that summarizes the spending variances for all expense items. Include columns for the flexible budget, variances (dollars and favorable/unfavorable indicators), and actual results.

3.If your were on the board of directors of the theater, would you be pleased with how well costs were controlled during the year? Why or why not? Be specific in your response by identifying the variances that seemed especially significant, and provide potential reasons why the variances occurred.

4.The cost formulas provide figures for the average cost per production and average cost per performance. How accurate do think these figures would be for predicting the cost of a new production or of an additional performance of a particular production?