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Software Associates
Solution by Venky Nagar
Exhibit 1
Profit Statement
Actual Budget Variance
Revenue $ 3,264,000 $ 3,231,900 $ 32,100 F
Consultant expenses $ 2,029,050 $ 1,748,250 $ 280,800 U
Operating expenses $ 938,560 $ 877,300 $ 61,260 U
__________ __________ ________
Profit $ 296,390 $ 606,350 $ 309,960 U
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Revenue Variance Analysis (Exhibit 2)
Actual billing rate Budgeted billing rate
$3,264,000 = $83.6923/hr $3,231,900 = $90/hr
39,000 hrs 35,910 hrs
Actual Flex budget Budgeted revenue
AP x AQ SP x AQ SP x SQ
$83.6923 x 39,000 hrs $90 x 39,000 $90 x 35,910 hrs
hr hr
= $ 3,264,000 = $ 3,510,000 = $ 3,231,900
Variances $ 246,000 U $ 278,100 F
$ 32,100 F
3
Revenue Billing Variance
Expected Billing % = 35,910 hrs = 76%
47,250 hrs
Actual Billing % = 39,000 hrs = 76.7%
50,850 hrs
SP x AQ SP x projected billing hrs SP x SQ
$90 x (39K hrs = 76.7% x 50,850) $90 x 76% x 50,850 hrs $90 x 35,910 hrs
hr
$3,510,000 = $ 3,478,140 $ 3,231,900
$31,860 F $246,240 F
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Exhibit 2
Cost analysis of consultant
Actual Budgeted
Wage rate
$ 2,029,050 = $39.90 $ 1,748,250 = $37
50,850 hr 47,250 hrs hr
Variance
AP x AQ SP x AQ SP x SQ
$ 2,029,050 = $39.90 x 50,850 $37 x 50,850 $37 x 47,250 hrs
hr
$ 1,881,450 $ 1,748,250
147,600 U $ 133,200 U
$ 280,800K U
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Exhibit 3
Cost analysis overhead (variable overhead only)
$877,300 OH Budgeted
$525,000 variable (computed based on % variable data)
$352,300 fixed
__________
Budget rate = 525,000 = $5,000/consultant
105 consultants
Actual rate Actual VOH = 938,560 – 352,300 = $5188.14/consultant. (I assume fixed OH remains same)
113 113
Variance
AP x AQ SP x AQ SP x SQ
$5188.14 x 113 5000 x 113 $5000 x 105
$568,260 $565,000 $525,000
$21,260 U $40K U
61,260 U
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Exhibit 4
Mix rates revenue
Contract Solutions
Actual $ 1,344,000 $ 1,920,000
24,000 hrs 15,000 hrs
= $56/hr = $128/hr
Budget $ 1,088,640 $ 2,143,260
20,160 hrs 15,750
= $54/hr = $136.08/hr
Budget 20,160 hrs = 56% 15,750 hrs = 44%
Mix 35,910 hrs 35,910 hrs
(hrs) ( = 20,160 + 15,750) ( = 20,160 + 15,750)
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Exhibit 4
Mix variance revenue
Solutions (total variance = $223,260U)
AP x AQ SP x AQ SP x ASQ SP x SQ
$128 x 15K hrs $136.08 x 15K hrs $136.08 x (44% x 39K = 17,160 hrs) $136.08 x 15,750 hrs
$ 1,920,000 $ 2,041,200 $ 2,335,132 $ 2,143,260
$121,200 U $293,932 U $191,872 F
102,060 U
Contract (total variance = $255,360F)
$56 x 24K $54 x 24K $54 x (56% x 39K = 21,840) hrs $54 x 20,160
$ 1,344,000 $ 1,296,000 $ 1,179,360 1,088,640
$48K F $116,640 F $90,720 F
$207,360 F
Total
$ 3,264,000 $ 3,337,200 $ 3,514,492 3,231,900
$73.2K U $177,292 U $282,592 F
$32,100 F
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Exhibit 4
Mix variance consultant cost
Contract Solutions
Actual $ 1,036,800 = $36 $992,250 = $45
28,800 hrs hr 22,050 hrs hr
Budgeted $756,000 = $30 $992,250 = $45
25,200 hrs hr 22,050 hrs hr
Budgeted 25,200 hrs = 53% 22,050 hrs = 47%
mix hrs 25,200 + 22,050 hrs 47,250 hrs
(= 47,250)
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Exhibit 4
Mix consultant cost variance
Solutions (total variance = 0)
AP x AQ SP x AQ SP x ASQ SP x SQ
$45 x 22,050 $45 x 22,050 $45 x (47% 50,850 = 23,899.5 hrs) $45 x 22,050 hrs
$992,250 $992,250 $ 1,075,477.5 $992,250
0 $83,227.5 F $83,227.5 U
Contract (total variance = $280,800U)
$36 x 28,800 $30 x 28,800 $30 x (53% x 50,850 = 26,950.5 hrs) $30 x 25,200 hrs
$ 1,036,800 $ 864,000 $ 808,515 $ 756,000
$172,800 U $55,485 U $52,515 U
$108,000 U
Total
$ 2,029,050 $ 1,856,250 $ 1,883,962.5 $ 1,748,250
$172,800 U $27,742.5 F $135,742.5 U
$280,800 U
