Question

EZ-Tax is a tax accounting practice with partners and staff members. Each billable hour of partner time has a $800 budgeted price and $375 budgeted variable cost. Each billable hour of staff time has a budgeted price of $210 and a budgeted variable cost of $120. For the most recent year, the partnership budget called for 5,000 billable partner-hours and 20,000 staff-hours. Actual results were as follows:

Partner revenue $4264,000 5200 hours
Staff revenue $4510,000 22,000 hours

Required
Compute the sales price and activity variances for these data. Also compute the mix and quantity variances.

Answer 1

The partner sales price variance is calculated as the difference between the actual revenue and budgeted revenue, resulting in $264,000 favorable. Similarly, the staff sales price variance is a $310,000 favorable difference. However, the mix and quantity variances cannot be calculated with the provided information.

Step-by-step explanation:

Sales Price Variance and Activity Variance Calculation

To calculate the sales price variance for partners, we take the difference between actual revenue and budgeted revenue at the budgeted price:

Budgeted revenue for partners = Budgeted hours × Budgeted price = 5,000 hours × $800/hour = $4,000,000

Actual revenue for partners = $4,264,000

Partner Sales Price Variance = Actual revenue - Budgeted revenue = $4,264,000 - $4,000,000 = $264,000 (Favorable)

For the staff, the sales price variance is:

Budgeted revenue for staff = Budgeted hours × Budgeted price = 20,000 hours × $210/hour = $4,200,000

Actual revenue for staff = $4,510,000

Staff Sales Price Variance = Actual revenue - Budgeted revenue = $4,510,000 - $4,200,000 = $310,000 (Favorable)

The activity variance for partners is:

Budgeted variable cost for actual hours = Actual hours × Budgeted variable cost = 5,200 hours × $375/hour = $1,950,000

Actual variable cost for partners = Actual hours × Actual variable cost

Partner Activity Variance = Budgeted variable cost for actual hours - Actual variable cost

The activity variance for staff is:

Budgeted variable cost for staff actual hours = Actual hours × Budgeted variable cost = 22,000 hours × $120/hour = $2,640,000

Actual variable cost for staff = Actual hours × Actual variable cost

Staff Activity Variance = Budgeted variable cost for actual hours - Actual variable cost

The mix variance and quantity variance cannot be computed with the given information, as mix variance requires a breakdown of the total hours worked by each type of employee when multiple products or services are involved, and quantity variance relates to the total quantity of input used versus the amount that should have been used according to standards.

Answer 2

EZ-Tax

Partner Staff Total

a. Sales price variance $104,000 ($110,000) ($6,000) U

b. Activity variance $160,000 $420,000 $580,000 F

c. Mix variance $85,000 $180,000 $265,000 F

d. Quantity variance $189,000 $70,000 $259,000 F

Step-by-step explanation:

a) Data and Calculations:

Partner Staff

Budgeted billable rate per hour $800 $210

Budgeted variable cost per hour 375 120

Budgeted billable hours 5,000 20,000

Budgeted revenue $4,000,000 $4,200,000

Budgeted variable cost 1,875,000 2,400,000

Actual revenue $4,264,000 $4,510,000

Actual billable hours 5,200 22,000

Actual billable rate per hour $820 $205

Budgeted billable rate per hour $800 $210

Variance in price $20 ($5)

Sales price variance $104,000 ($110,000) ($6,000)

Sales price variance = (Standard price - Actual price) * Actual billable hours

= ($800 - $820) * 5,200 + ($210 - $205) * 22,000

= $20 * 5,200 + ($5) * 22,000

= $104,000 - 110,000

= $6,000 U

Activity variance = (Actual billable hours - Standard billable hours) * Standard rate

= (5,200 - 5,000) * $800 + (22,000 - 20,000) * $210

= (200 * $800) + (2,000 * 210)

= $160,000 + 420,000

= $580,000 F

Partner Staff Total

Budgeted revenue $4,000,000 $4,200,000 $8,200,000

Budgeted variable cost 1,875,000 2,400,000 4,275,000

Budgeted contribution $2,125,000 $1,800,000 $3,925,000

Actual revenue $4,264,000 $4,510,000 $8,774,000

Actual variable cost 1,950,000 2,640,000 4,590,000

Actual contribution $2,314,000 $1,870,000 $4,184,000

Quantity variance $189,000 $70,000 $259,000

Quantity variance = Budgeted contribution - Actual contribution

= $3,925,000 - $4,184,000

= $259,000 F

Mix Variance:

Standard contribution margin $425 $90

Volume variance 200 2,000

Mix variance = $85,000 $180,000