Question

1. Prepare a static budget for the company.

2. Assume that the actual utilization came in at the following rates:

VP-50%

Senior-82%

Staff-93%

Based on the above utilization, prepare a flexible budget and calculate the Level 2/3 variances.

The WIX Company Civil Engineers consists of two divisions. The divisions are Water and Waste Water. The company sells engineering services to various customers. The following are the bill rates for the various staff classifications: Vice President $200/hour Senior Engineer $180/hour Staff Engineer $150/hour. The two divisions expect to bill the following hours: water-10000 hours, vice president at 10% of the time, 30% of Senior Engineer time and remaining to Staff Engineers. waste water-6000 hours, vice president at 20% of the time, 20% of Senior Engineer time and remaining to Staff Engineers The Direct Labor costs per hours are as follows: Vice President $80/hour Senior Engineer $60/hour Staff Engineer $40/hour The utilization for each staff members are as follows: Vice President 60% Senior Engineer 80% Staff Engineer 90% The company has the following other costs: Admin Salaries $90,000 Rent Utilities Benefits $100,000 $6,000 $76,000 Assume 20% of time for each staff member includes vacation and sick time, 2080 is the annual total work hours

Answer 1

Solution: (1):computation of static budget Water Waste Particulars REVENUE: Vice president hours Senior engineers Staff engineers Parcenta Parcenta Particulars Parcenta Parcentage 2,00,000 5,40,000 9,00,000 16,40,000 26,36,000 1,200 1,200 3,600 200 180 150 1000 3,000 6,000 2,40,000 2,16,000 5,40,000 9,96,000 TOTAL REVENUE Labour cost Vice Senior engineers Staff engineers Total labour cost Admin salaries Rent Utilites Benefits sident hours 4,584 6,562 13,333 80 60 40 36,65,120 3,93,720 5,33,320 12,92.160 90,000 1,00,000 6,000 76,000 15,64,160 Total cost Total profit 10,71,840

(2): preapartion of fixed budget water waste Particulars REVENUE: Vice president hours Senior engineers Staff engineers Particulars Percenta 1,200 1,200 3,600 200 180 150 1000 3,000 6,000 2,00,000 5,40,000 9,00,000 16,40,000 2,40,000 2,16,000 5,40,000 9,96,000 TAL REVENUE 26,36,000 DIRECT LABOUR COST Vice president hours Senior engineers Staff engineers Total labour cost Admin salaires Rent Utilities Benefits 4,40,000 3,84,180 5,16,160 13,40,340 90,000 1,00,000 6,000 76,000 80 60 40 5,500 6,403 12,904 Total labour cost 16,12,340 Total profit WORKING NOTE: Level 2 variance: Budgeted profit minus actual profit 10,71,840-10,23,660-48, 180 Level 3 variance: Total cost variance 15,64,160 - 16,12,340 10,23,660 48,180 Sales volume variance nil Labour cost variance 12,92,160 -13,40,340 48,180

Labour rate variance nil Labour efficiency varianceBudgeted labour cost minus actual labour cost 12,92,160-13,40,340 48,180