Assignment 1: Variance Analysis Report
In order to perform a variance analysis report Jenkins calculated the actual revenues and expenses and found the difference which was $296,610 in profits. Then Jenkins did the same with budgeted values and found the budgeted profits to be $606,350. The variance amount in turn is $309,960 under budget. Also, the variance amount for revenues is $32,100. This number is favorable due to the fact that they made more than what they had budgeted for. But on the contrary, the variance amount for expenses was $342,060, which was unfavorable because they spent far more than what they had budgeted for.
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Jenkins found that Software Associates made a total of $278,100 when providing the extra amount of hours billed. This is favorable for Software Associates if the billing rate was $90 as expected; however the average rate per consultant amounted to $83.69.
Next, Jenkins determined the average billing rate variance by subtracting the actual price from the expected price. She then multiplied the difference in price and the quantity of work done. Jenkins found that they had a deficit of $246,090. This is unfavorable because Software Associates is losing money due to the actual rate drop from $90 to $83.69.
When Jenkins compared the variance of both quantity of hours and hourly rate, this gave her the total revenue variance of $32,100. The total revenue variance is also the difference between the actual revenue and expected revenue. Over all, it is favorable that Software Associates created more revenue. Jenkins then determined whether or not the additional revenue would cover the additional costs incurred for the excess consultants.
Jenkins used the same method for consultant expenses. By subtracting the actual number of hours supplied (50,850) from the budgeted number of hours supplied (47,250) and multiplying the expected costs, $37, Jenkins found a cost of $133,200. $133,200 is the amount they paid over the expected cost due to the increase in actual labor. Next, Jenkins took the actual cost of $39.90 and subtracted the expected cost of $37 then multiplied the actual amount of labor hours, 50,850. This amounted to $147,465. This is the extra amount Software Associates paid due to the labor cost change. The two numbers, $133,200 and $147,465, equal $280,800. The difference in consultant salaries cost from actual to expect cost is $280,800. Overall operating expense is broken down into two categories, actual and expected. Subtract the actual operating expense, $938,560, from the expected operating expense of $877,300 to get the variance of $61,260. This amount is unfavorable. Jenkins found the total expense variance by completing the same equation. She subtracted the expected total expense from the actual total expense. The total expense variance was found to be $342,060. The extra hours worked created more costs than the extra revenue acquired.
This puts the company in an awful position. The budget was not planned out very well. The price of the billed labor decreased while more labor was done and less was billed for. This is an equation for disaster as you can see. More planning must be taken when figuring out a budget and Software Associates must stick strictly to the budget for reasons like this. Numbers can add up quickly.
Assignment 3: Expense Analysis: Spending and Volume Variance Analysis of Operating Expenses
Jenkins then needed to analyze the expense analysis. Many of the expenses for Software Associates were not entirely fixed costs or variable costs. Rather, many of the expenses were...