Question

CASE 9-29 Performance Report with More than One Cost DriverLO9-1, LO9-2, LO9-3, LO9-4, LO9-5 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 Page 495 The Little Theatre Costs from the Planning Budget For the Year Ended December 31 Budgeted number of productions Budgeted number of performances 108 $216,000 Actors and directors wages Stagehands wages 32,400 Ticket booth personnel and ushers wages 16,200 Scenery, costumes, and props 108,000 54,000 Theater hall rent Printed programs 27,000 Publicity 12,000 Administrative expenses 43,200 $508,800 Total 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

Answer each question as if you were a consultant hired by The Little Theater and are presenting to the board as indicated in the case study. Explain the terminology as you present the consultant's report.

Use outside sources when necessary BUT MAKE SURE YOU CITE THEM!

When giving a recommendation, back it up with numbers and show calculations.

This particular answer should be a management report that no more than four pages in length.

Answer 1

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Part 1
		Actual	Spending Variance		Flexible	Activity Variance		Planning		Flexible Working
No of Productions		7			7			6
No of performanes		168			168			108
Actor and Director wages	No of performance	$   341,800	$   5,800	Unfavorable	$   336,000	$   120,000	Unfavorable	$   216,000		Planning/108*168
Stagehand's Wages	No of performance	$     49,700	$      700	Favorable	$     50,400	$     18,000	Unfavorable	$     32,400		Planning/108*168
Ticket booth personnel and usher's wages	No of performance	$     25,900	$      700	Unfavorable	$     25,200	$        9,000	Unfavorable	$     16,200		Planning/108*168
Scenery, Costumes and props	No of Productions	$   130,600	$   4,600	Unfavorable	$   126,000	$     18,000	Unfavorable	$   108,000		Planning/6*7
Theatre Hall rent	No of performance	$     78,000	$   6,000	Favorable	$     84,000	$     30,000	Unfavorable	$     54,000		Planning/108*168
Printed programmes	No of performance	$     38,300	$   3,700	Favorable	$     42,000	$     15,000	Unfavorable	$     27,000		Planning/108*168
Publicity	No of Productions	$     15,100	$   1,100	Unfavorable	$     14,000	$        2,000	Unfavorable	$     12,000		Planning/6*7
Administrative Expense	75% Fixed				$     32,400			$     32,400	75%
	15% No of production				$        7,560			$        6,480	15%	Planning/108*168
	10% No of performance				$        6,720			$        4,320	10%	Planning/6*7
	Total Admin	$     47,500	$      820	Unfavorable	$     46,680	$        3,480	Unfavorable	$     43,200
Total		$   726,900	$   2,620	Unfavorable	$   724,280	$   215,480	Unfavorable	$   508,800
Part 2
Overall unfavorable spending variance of $2,620 is very small portion of total cost i.e. 0.4%
This suggests that cost are under controll.
Moreover, largest unfavorable variance are in value added service (scenery,costume etc) which may warrant additional spending.
Part 3
Average cost may not be a good indicator.
It all depends on production and performance type.
There may be that one performance need very simple costumes and other need very costly one