MANAG ACCT F/..(LL)+CONNECT W/PROCTORIO+
MANAG ACCT F/..(LL)+CONNECT W/PROCTORIO+
5th Edition
ISBN: 9781266018183
Author: Noreen
Publisher: MCG
Question
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Chapter 9, Problem 9.24P
To determine

Evaluation of the report prepared by bookkeeper.

Introduction: Performance report means report prepared for analyzing the performance of the variances on actual level and budgeted level. These performance reports are prepared on routine basis by different departments of the organization.

Expert Solution
Check Mark

Answer to Problem 9.24P

The report prepared is based on actual revenue per unit and budgeted revenue per unit. Increase or decrease in level of activity of the cost must be maintained. So, this report cannot be used as the performance report.

Explanation of Solution

Evaluation of performance report prepared:

  1. Considering all cost to be variable.
  2. It cannot be assumed that variance of particular cost are fixed or mixed.
  3. Report prepared is based on actual revenue per unit and budgeted revenue per unit.
  4. Increase or decrease in level of activity of the cost must be maintained. In this case budgeted level of activity is less than actual activity. Whereas, actual costs are less than planned costs.
  5. So, this report cannot be used as the performance report.
To determine

Prepare performance report of the company that help manager to analyze the performance of the company.

Introduction: Performance report means report prepared for analyzing the performance of the variances on actual level and budgeted level. These performance reports are prepared on routine basis by different departments of the organization.

Expert Solution
Check Mark

Answer to Problem 9.24P

The performance report of the company that helps manager to analyze the performance has unfavorable spending variance of $1,600(U) and favorable activity variance of $2,250(F) .

Explanation of Solution

Prepare flexible budget performance report.

    ParticularsActual resultsSpending variancesFlexible budgetActivity variancesPlanning budget
    Exchanges completed$50$50$40
    Total revenue$19,250$500(U)$19,750$3,950(F)$15,800
    Less: Expenses
    Legal and search fee$9,200$950(U)$8,250$1,650(U)$6,600
    Office expenses$5,600$150(U)$5,450$50$5,400
    Equipment
      ($10×40)
    $400$0$400$0$400
    Rent
      ($45×40)
    $1,800$0$1,800$0$1,800
    Insurance
      ($5×40)
    $200$0$200$0$200
    Total expenses$17,200$1,100(U)$16,100$1,700(U)$4,400
    Net operating income$2,050$1,600(U)$3,650$2,250(F)$1,400

Working Notes:

  Office expenses=$5,200+( ($135×40)$5,200 40)Office expenses=$5,200+(5×50)Office expenses=$5,450

Computation of revenue and cost for flexible budget

    ParticularsFixed cost+Amount per exchange
      ×
    Number of exchanges=Flexible budgeted value
    Total revenue0+395
      ×
    50=19,750
    Legal and search fee0+165
      ×
    50=8,250
    Office expenses5,200+5
      ×
    50=5,450
    Equipment depreciation400+0
      ×
    50=400
    Rent1,800+0
      ×
    50=1,800
    Insurance200+0
      ×
    50=200

Computation of revenue and cost for planned budget

    ParticularsFixed cost+Amount per exchange
      ×
    Number of exchanges=Flexible budgeted value
    Total revenue0+395
      ×
    40=15,800
    Legal and search fee0+165
      ×
    40=6,600
    Office expenses5,200+5
      ×
    40=5,400
    Equipment depreciation400+0
      ×
    40=400
    Rent1,800+0
      ×
    40=1,800
    Insurance200+0
      ×
    40=200
To determine

Evaluate the performance of the company by the analyzing the performance report.

Introduction: Performance report means report prepared for analyzing the performance of the variances on actual level and budgeted level. These performance reports are prepared on routine basis by different departments of the organization.

Expert Solution
Check Mark

Answer to Problem 9.24P

Unfavorable spending variance and unfavorable revenue variances are the main reason for change in performance report. So, these details should be investigated by owner or manager of the company

Explanation of Solution

The performance of the company by the analyzing the performance report gives following information:

  1. Actual results of net operating profit is $2,050
  2. Unfavorable spending variance and unfavorable revenue variances are the main reason for change in performance report.
  3. As per favorable activity the net operating profit should be increased by $2,250 .
  4. These details should be investigated by owner or manager of the company.

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