Prepare an analysis of the revenue change, separating the volume effect (increas
ID: 2463259 • Letter: P
Question
Prepare an analysis of the revenue change, separating the volume effect (increase in number of consultants) from the productivity effect (billing percentage)
Exhibit 2 Budget and Actual Income Statement: Quarter 2 2000
Actual
Budget
Revenues
$3,264,000
$3,231,900
Less:
Consultants' salaries and fringes
$2,029,050
$1,748,250
Operating expenses
938,560
877,300
Total expenses
$2,967,610
$2,625,550
Operating profit
$ 296,390
$ 606,350
Profit %
9.1%
18.8%
Operating Statistics
Number of consultants (FTE)
113
105
Hours supplied
50,850
47,250
Hours billed
39,000
35,910
Average billing rate $83.69 $90.00
Actual
Budget
Revenues
$3,264,000
$3,231,900
Less:
Consultants' salaries and fringes
$2,029,050
$1,748,250
Operating expenses
938,560
877,300
Total expenses
$2,967,610
$2,625,550
Operating profit
$ 296,390
$ 606,350
Profit %
9.1%
18.8%
Operating Statistics
Number of consultants (FTE)
113
105
Hours supplied
50,850
47,250
Hours billed
39,000
35,910
Average billing rate $83.69 $90.00
Explanation / Answer
Actual Budget Revenue Change volume effect productivity effect Revenues 3264000 3231900 $32,100 ($214,140) ($246,000) Less: Consultants' salaries and fringes 2029050 1748250 $280,800 $147,600 $130,366 Operating expenses 938560 877300 $61,260 ($5,582) ($14,230) Total expenses 2967610 2625550 $342,060 $142,018 $116,135 Operating profit 296390 606350 ($309,960) ($356,158) ($362,135) Profit % 0.091 0.188 ($0) ($0) Operating Statistics Number of consultants (FTE) 113 105 Hours supplied 50850 47250 Hours billed 39000 35910 Average billing rate $83.69 $90.00 83.69230769 90 Formula for calculating of Volume effect ( Actual Figure - ( Budget figure/budget nuber of consultant X Actual number of Consultant) Formula for calculating of Productive effect ( Actual Figure - ( Budget figure/budget nuber of Hours Billed X Actual number of Hours Billed)