Budget extracts of one franchisee for November are shown below, analysed by male and female clients....

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Budget extracts of one franchisee for November are shown below, analysed by male and female clients. For the purposes of budget projections, average revenue rates are used. At the month end these are compared with the average monthly rates actually achieved using variance analysis. Sales price, sales quantity, sales mix and cost variances are routinely produced in order to compare the budget and actual results. Staff working in this business are paid on a commission basis in order to act as an incentive to attract and retain clients. The labour rate variance is based on the commission payments, any basic pay is part of the monthly fixed cost. Budget Male Female Clients 4,000 1,000 () () Average revenue (per client) 7.5 18.0 Average commission (per client) 3.0 10.0 Total monthly fixed cost 20,000 Actual results Male Female Clients 2,000 2,000 () () Average revenue (per client) 8.0 20.0 Average commission (per client) 3.5 11.0 Total monthly fixed cost 24,000 Required: (a) Reconcile the budgeted and actual profit for November by calculating appropriate price, quantity, mix and cost variances, presenting the information in good form. You should adopt a contribution style, with mix variances based on units (i.e. clients). (10 marks) (b) Write a short memorandum to the manager of the business commenting on the result in (a) above. (4 marks) (6 marks) (c) Comment on the limitations associated with generating sales variances as in (a) above. ACCA Paper 8 Managerial Finance Budget extracts of one franchisee for November are shown below, analysed by male and female clients. For the purposes of budget projections, average revenue rates are used. At the month end these are compared with the average monthly rates actually achieved using variance analysis. Sales price, sales quantity, sales mix and cost variances are routinely produced in order to compare the budget and actual results. Staff working in this business are paid on a commission basis in order to act as an incentive to attract and retain clients. The labour rate variance is based on the commission payments, any basic pay is part of the monthly fixed cost. Budget Male Female Clients 4,000 1,000 () () Average revenue (per client) 7.5 18.0 Average commission (per client) 3.0 10.0 Total monthly fixed cost 20,000 Actual results Male Female Clients 2,000 2,000 () () Average revenue (per client) 8.0 20.0 Average commission (per client) 3.5 11.0 Total monthly fixed cost 24,000 Required: (a) Reconcile the budgeted and actual profit for November by calculating appropriate price, quantity, mix and cost variances, presenting the information in good form. You should adopt a contribution style, with mix variances based on units (i.e. clients). (10 marks) (b) Write a short memorandum to the manager of the business commenting on the result in (a) above. (4 marks) (6 marks) (c) Comment on the limitations associated with generating sales variances as in (a) above. ACCA Paper 8 Managerial Finance