Question

The Little Theatre is a nonprofit organization devoted to staging plays for children. The theatre 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 year's planning budget appear below. The Little Theatre had tentatively planned to put on six different productions with a total of 108 performances. For example, one of the productions was Peter Rabbit, which had a six-week run with three performances on each weekend.
The Little Theatre
Costs from the Planning Budget
For the Year Ended December 31
Budgeted number of productions 6
Budgeted number of performances 108
Actors' and directors' wages $216,000
Stagehands' wages 32,400
Ticket booth personnel and ushers' wages 16,200
Scenery, costumes, and props 108,000
Theatre hall rent 54,000
Printed programs 27,000
Publicity 12,000
Administrative expenses 43,200
Total $508,800
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 75% of the budgeted costs are fixed, 15% 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 theatre authorized expanding the theatre's program to seven productions and a total of 168 performances. Not surprisingly, actual costs were considerably 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 Little Theatre
Actual Costs
For the Year Ended December 31
Actual number of productions 7
Actual number of performances 168
Actors' and directors' wages $341,800
Stagehands' wages 49,700
Ticket booth personnel and ushers' wages 25,900
Scenery, costumes, and props 130,600
Theatre hall rent 78,000
Printed programs 38,300
Publicity 15,100
Administrative expenses 47,500
Total $726,900
Required:
1. Complete the flexible budget for The Little Theatre based on the actual activity of the year.
2. Complete the flexible budget performance report for the year that shows both activity variances and spending variances. (Indicate the effect of each variance as either favorable, unfavorable, or no effect.)

Answer 1

The Little Theatre's 2023 flexible budget shows a $52,700 net unfavorable variance, driven primarily by higher-than-expected labor costs.

How is that so?

A. Below is the flexible budget for The Little Theatre based on the actual activity of the year:

Cost Item | Flexible Budget

Actors and Directors' Wages | $336,000

Stagehands' Wages | $50,400

Ticket Booth Personnel and Ushers' Wages | $25,200

Scenery, Costumes, and Props | $126,000

Theatre Hall Rent | $84,000

Printed Programs | $42,000

Publicity | $14,000

Administrative Expenses | $46,680

Total | $674,280

B. The Little Theatre had a number of variances in 2023. The largest unfavorable variance was for actors' and directors' wages, which was $125,800. This variance was due to a number of factors, including the fact that the Little Theatre put on more productions than originally planned and that the actors' union negotiated a higher wage rate for its members.

The Little Theatre also had a number of favorable variances in 2023. The largest favorable variance was for theatre hall rent, which was $24,000. This variance was due to the fact that the Little Theatre was able to negotiate a lower rate with the theatre hall owner.

Answer 2

Flexible Budget and Performance Report for The Little Theatre

Flexible Budget:

Item Planned Actual Variance

Number of productions 6 7 +1

Number of performances 108 168 +60

Actors' & directors' wages $216,000 $341,800 +$125,800 (unfavorable)

Stagehands' wages $32,400 $49,700 +$17,300 (unfavorable)

Ticket booth & ushers' wages $16,200 $25,900 +$9,700 (unfavorable)

Scenery, costumes, & props $108,000 $130,600 +$22,600 (unfavorable)

Theatre hall rent $54,000 $78,000 +$24,000 (unfavorable)

Printed programs $27,000 $38,300 +$11,300 (unfavorable)

Publicity $12,000 $15,100 +$3,100 (unfavorable)

Administrative expenses $43,200 $47,500 +$4,300 (unfavorable)

Total $508,800 $726,900 +$218,100 (unfavorable)

Flexible Budget Performance Report:

Item Planned Actual Activity Variance Spending Variance Total Variance Effect

Actors' & directors' wages $216,000 $341,800 +$96,180 (unfavorable) +$29,620 (unfavorable) +$125,800 (unfavorable) Unfavorable

Stagehands' wages $32,400 $49,700 +$11,376 (unfavorable) +$5,924 (unfavorable) +$17,300 (unfavorable) Unfavorable

Ticket booth & ushers' wages $16,200 $25,900 +$7,992 (unfavorable) +$1,708 (unfavorable) +$9,700 (unfavorable) Unfavorable

Scenery, costumes, & props $108,000 $130,600 +$14,700 (unfavorable) +$7,900 (unfavorable) +$22,600 (unfavorable) Unfavorable

Theatre hall rent $54,000 $78,000 +$21,600 (unfavorable) +$2,400 (unfavorable) +$24,000 (unfavorable) Unfavorable

Printed programs $27,000 $38,300 +$10,152 (unfavorable) +$1,148 (unfavorable) +$11,300 (unfavorable) Unfavorable

Publicity $12,000 $15,100 +$2,400 (unfavorable) +$700 (unfavorable) +$3,100 (unfavorable) Unfavorable

Administrative expenses $43,200 $47,500 +$1,620 (unfavorable) +$2,680 (unfavorable) +$4,300 (unfavorable) Unfavorable

Total $508,800 $726,900 +$168,020 (unfavorable) +$50,080 (unfavorable) +$218,100 (unfavorable) Unfavorable