Fixed Expenses: Case Study

Management should note that the level of activity was above what had been planned for the month. This led to an expected increase in profits of $1,100. However, the individual items on the report should not receive much management attention. The favorable variance for revenue and the unfavorable variances for expenses are entirely caused by the increase in activity.

Another concern identified, is the utilities expense budget for utilities in Year 9 which is $150,000. This amount is identified as a fixed amount and is unrelated to actually production activities and manufacturing efficiency. Considering that production levels and activity fluctuates throughout the year, the budget for utilities should be a variable item. An example; from Year 7 to Year 8, the utilities expenses increase by $15,000 and with this detection, ways to reduce this expense should be investigate. Another concern is a duplicated line item under the Selling, General, and Administrative Budget for Utilities and Utilities and Services. Another issue for concern, Total Variable Cost was reported to be lower; however was not enough for the lack of sales combined with an increase in advertising and transportation which resulted in an overall negative result. The low Net Sales directly impacted the Contribution Margin which decreased by $49,397. Overall, these concerns indicate the need for a flexible budget with variance analysis.

For 2004, Fixed expenses = 436 (in million €). Also, CM ratio = 653/ 1686 = 0.387

In this table, it reflects the changes in fixed plant overhead from $420,000 to $378,000. The company still has the fixed selling and administrative expense per quarter of $118,000. The new company fixed overhead is now at $496,000 from the past $538,000 ($42,000) change from past to

But at the same time one must keep in mind that how much it will cost follow about the consumption by each resident. As we see in this example, food service, supportive services are around 43% of the total costs, so we can maintain accounts for each resident for these services, at the same time, laundry services are only 3.74% of the total costs, and it is not advisable to maintain laundry costs for each resident, which may cost more.

Thirdly, since the total fixed costs account for 14.1% of its sales in the year of 1983 and 1984, we assume the total fixed costs will remain at this level until 1989. Similarly, the account receivable, account payable, and inventories stays at 10%, 5.5% and 4.5% of sales respectively.

Revenue Estimates Revenue Item 100% Monthly 75% Monthly 50% Monthly Notes Rooms $2,956,500 $2,217,375 $1,478,250 8,100 daily Leases $180,000 $135,000 $90,000 TOTAL REVENUE $3,136,500 $2,352,375 $1,568,250 Expences TOTAL VARIABLE COSTS $454,000 $340,500 $227,000 TOTAL FIXED COSTS $1,403,000 $1,403,001 $1,403,002 TOTAL EXPENSE BEFORE IT $1,857,000 $1,743,501 $1,630,002 EBIT $1,279,500 $608,874 -$61,752 Depreciation $320,000 $320,001 $320,002 EBITDA $1,599,500 $928,875 $258,250 Furnishing Interest $110,000 $110,000 $110,000 20yr Mortgage Interest $182,000 $182,000 $182,000 TOTAL INTEREST $292,000 $292,000 $292,000 TAXES (40%) $395,000.00 $126,749.60 -$141,500.80

Explain what are royalty rate contracts and fixed-fee contracts. What is the main difference between them?

Account/Description Manufacturing overhead Cost of goods sold Actual overhead costs Incurred on account Indirect materials Indirect labor Depreciation $120,000 14,000 20,000 8,000 $162,000 Applied overhead costs Job 7640 Job 7641 Job 7642 $43,200 57,600 66,000 $166,800 $162,000 166,800 $4,800

What formula or function does he put in columns B through F in Row 13 that will give him the total expenses for the week in each category?

Use of the flexible budget shows the budgeted operating income given the actual sales. When you compare the flexible budget to the actual budget you are able to compare the total sales and cost incurred given the same units sold. The sales price variance, which is the actual sales less the flexible budgeted sales, was $14,700 favorable. This means that actual sales were higher than budgeted sales at that usage. This is attributable to the increase in service price from $25 to $26.40. Price variance for material usage was $2,100 over the flexible budget projection. This could be attributed to overuse or waste of materials. As expected, the direct labor price variance was $3,375 lower than the flexible budget amount. This is attributed to the manager’s effective use of labor. Operating expenses were also higher than the flexible budget

Types of expense |1 |2 |3 |4 |5 |Total | | | | | | | | | |Gas |$3,600.00 |$3,600.00 |$3,600.00 |$3,600.00 |$3,600.00 |$18,000.00 | |Repairs and Maintenance |$800.00 |$928.00 |$1,048.00 |$1,160.00 |$1,264.00 |$5,200.00 | |Tires | |$760.00 |$760.00 |$760.00 |$760.00 |$3,040.00 | |Insurance |$2,400.00 |$2,400.00 |$2,400.00 |$2,400.00 |$2,400.00 |$12,000.00 | |Registration and taxes |$848.00 |$720.00 |$600.00 |$488.00 |$384.00 |$3,040.00 | |Depreciation |$9,720.00 |$5,832.00 |$3,500.00 |$2,100.00 |$1,348.00 |$22,500.00 | |Purchase

The product my business has chose to produce is water bottles. After some research it can be said that the typical production cost of one water bottle unit is $20. Total fixed costs for my company including rent and utilities are $4000 per month. Given these numbers a linear cost function for my product can be constructed; C(x) = 20x + 4000. In this equation x represents water bottles produced each month at a price of $20 along with $4000 of total fixed costs. An estimated total cost per month can then be determined of $120,000 looking at what the company can afford. Using the cost function C(x), we can plug in 120,000 to then determine the number of water bottles produced each month, which will be x. The beginning equation is C(120000) = 20x + 4000, begin by subtracting 4000 from each side leaving us with 116000 = 20x then divide both sides of the equation by 20 to get a final answer of x = 5800. This is the number of bottles produced each month.

Compares five to seven expense results with budget expectations and describes possible reason for variances and strategies to keep results aligned with expectations

Erin should notify Smart Worx of the postponement as it is consistent with ethical principles of integrity and professional competence. As Erin is complying with these codes of ethics, she has nothing to lose or suffer as she followed the guidelines of the code and therefore cannot be