University Inn's most recent monthly expense analysis report revealed significant cost overruns. The manager was asked to explain the deviations. Below is the "budget v. actual" expense report for the month in question.

University Inn Budget v. Actual Expense Report For the Month Ending October 31, 2007 Actual (at 96% capacity)Budget (established at 80% capacity)VarianceUtilities$ 52,000$ 45,000$ (7,000)Laundry20,00018,000(2,000)Food service41,00035,000(6,000)Rent/taxes60,00060,000-Staff wages57,00055,000(2,000)Management salaries43,50045,0001,500Water13,00010,000(3,000)Maintenance15,20015,000(200) $ 301,700$ 283,000$ (18,700)

The Inn has observed that utilities, water, food service, staff wages, and laundry costs all vary with activity. The other costs are fixed. The budget reflected above was based upon an assumed 80% occupancy rate. The university's football team was on a winning streak and numerous alumni were returning to campus in October, resulting in a 96% occupancy rate during the month. Prepare a "flexible budget" based upon a 96% occupancy rate, and identify whether the Inn is being efficiently or inefficiently run. Comment on specific costs, and note why a flexible budget can improve performance evaluations. An example of the first line of the budget is provided below:

ActualBudgetVarianceUtilities$52,000$54,000$2,000 under budget Actual is already at 96% capacityThe budget was 45,000 assuming 80% capacity. To convert to 96% capacity: 45,000 divide by 0.8 = 56,250 (representing 100% capacity) X > 0.96 = 54,000