University Inn's most recent monthly expense analysis report revealed significant cost overruns

University Inn's most recent monthly expense analysis report revealed significant cost

overruns. The manager was asked to explain the deviations. Below is the "budget v.

actual" expense report for the month in question.

University Inn

Budget v. Actual Expense Report

For the Month Ending October 31, 20X7

Actual

Budget

Variance

Utilities

$52,000

$45,000

$(7,000)

Laundry

20,000

18,000

(2,000)

Food service

41,000

35,000

(6,000)

Rent/taxes

60,000

60,000

-

Staff wages

57,000

55,000

(2,000)

Management salaries

43,500

45,000

1,500

Water

13,000

10,000

(3,000)

Maintenance

15,200

15,000

(200)

$301,700

$283,000

$(18,700)

The Inn has observed that utilities, water, food service, staff wages, and laundry costs all

vary with activity. The other costs are fixed. The preceding budget was based upon an

assumed 80% occupancy rate. The university's football team was on a winning streak and

numerous alumni were returning to campus in October, resulting in a 96% occupancy rate

during the month.

Prepare a "flexible budget" based upon a 96% occupancy rate, and identify whether the Inn

is being efficiently or inefficiently run. Comment on specific costs, and note why a flexible

budget can improve performance evaluations.