Question

Building Your Skills Case [LO9-1, LO9-2, LO9-3]

The Little Theatre is a nonprofit organization devoted to staging plays for children. The theater 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 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 costs from the current year’s planning budget appear below.

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	$	222,480
Stagehands wages		38,880
Ticket booth personnel and ushers wages		22,680
Scenery, costumes, and props		108,360
Theater hall rent		60,480
Printed programs		33,480
Publicity		12,360
Administrative expenses		50,760
Total	$	549,480

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 analyze, 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 theater authorized expanding the theater’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	$	358,100
Stagehands wages		59,600
Ticket booth personnel and ushers wages		36,400
Scenery, costumes, and props		130,900
Theater hall rent		87,300
Printed programs		47,600
Publicity		15,700
Administrative expenses		55,800
Total	$	791,400

Required:

1. Prepare a flexible budget for The Little Theatre based on the actual activity of the year.

2. Prepare a report for the year that shows the spending variances for all expense items.

Answer 1

Flexible Budget Number of Production Number of Performance 168 Actors' and Director wages $ Stagehands' Wages Ticket booth Personal and Ushers' Wages $ Scenery, Costume and Props Theater hall rent Printed Program Publicity Administrative Expenses Total Expenses 346,080 60,480 35,280 126,420 94,080 52,080 14,420 54,849 783,689 Working Actors' and Director wages Stagehands' Wages Ticket booth Personal and Ushers' Wages Scenery, Costume and Props Theater hall rent Printed Program Publicity Administrative Expenses (222480/108)*168 Divide by budgeted performance and multiply by actual performance (38880/108) *168 Divide by budgeted performance and multiply by actual performance (22680/108) *168 Divide by budgeted performance and multiply by actual performance (108360/6)*7 Divide by budgeted production and multiply by actual production (60480/108) *168 Divide by budgeted performance and multiply by actual performance (33480/108) *168 Divide by budgeted performance and multiply by actual performance (12360/6)*7 Divide by budgeted production and multiply by actual production (50760*75%)+(((50760*15%)/6) * 7)+(((50760*10%)/108) *168) Administrative expense is 75% is Fixed, 15% on production and 10% on performance The Little Theatre Spending Variances Actual Results Flexible Budget Number of Production Number of Performance 168 168 $ Actors' and Director wages $ Stagehands' Wages Ticket booth Personal and Ushers' Wages $ Scenery, Costume and Props Theater hall rent Printed Program Publicity Administrative Expenses Total Expenses 358,100 59,600 36,400 130,900 87,300 47,600 15,700 55,800 791,400 $ $ $ $ $ $ $ $ $ 12,020 880 1,120 4,480 6,780 Puu 346,080 60,480 35,280 126,420 94,080 52,080 14,420 54,849 783,689 1,280 951 7,711 $ Spending Variance = Actual Results - Flexible Budget Spending Variance are favorable when actual expense is less than budgeted expenses. Spending Variance are Unfavorable when actual expense is more than budgeted expenses.