Meridian Financial Services (MFS) is a mortgage broker. It helps prospective hom
ID: 2593156 • Letter: M
Question
Meridian Financial Services (MFS) is a mortgage broker. It helps prospective homeowners find low-cost mortgage loans and helps existing homeowners refinance their current loans. MFS charges clients a fee equal to 0.5% of the loan amount. MFS’s static budget and its actual results for November are:
Static Budget
Actual Results
Number of loans
90
120
Average loan amount
$200,000
$224,000
Commission
0.5% of loan amount
0.5% of loan amount
Variable costs per loan application
Professional labor
6.00 hours at $40 per hour
7.2 hours at $42 per hour
Loan filing fees
$100
$100
Credit checks
$120
$125
Courier mailings
$50
$54
Office support (Fixed costs)
$31,000
$33,500
Required
Prepare an income statement based on actual results for November.
Prepare a static budget income statement for November.
Prepare a flexible budget income statement for November.
Prepare a level 2 variance analysis for November; identify sales-volume and flexible-budget variance for operating income.
Compute professional-labor price and efficiency variance for November (labor price is computed on per-hour basis).
What factors would you consider in evaluating the effectiveness of professional labor in November?
Static Budget
Actual Results
Number of loans
90
120
Average loan amount
$200,000
$224,000
Commission
0.5% of loan amount
0.5% of loan amount
Variable costs per loan application
Professional labor
6.00 hours at $40 per hour
7.2 hours at $42 per hour
Loan filing fees
$100
$100
Credit checks
$120
$125
Courier mailings
$50
$54
Office support (Fixed costs)
$31,000
$33,500
Explanation / Answer
Solution:-
Part 1:- Prepare an income statement based on actual results for November:-
Part 2:- Prepare a static budget income statement for November:-
Part 3:- Prepare a flexible budget income statement for November:-
Part 4:- Prepare a level 2 variance analysis for November; identify sales-volume and flexible-budget variance for operating income:-
Total flexible-budget variance = 3,332 F
Total sales-volume variance = 14,700 F
Total static-budget variance = 18,032 F
Note:- As per chegg guidelines if more than four sub-part posted than we liable to answer only forst four sub-part.
Please Rate or comment if you have any doubt regarding this solution.
Meridian Financial Services (MFS) Income statement (actual result) Revenue (120 × 0.5 percent × 224,000) (a) 134,400 Variable costs: Professional labor (7.2 × 42 × 120) 36,288 Loan filing fees (1,00 × 120) 12,000 Credit-worthiness checks (125 × 120) 15,000 Courier mailings (54 × 120) 6,480 Total variable cost (b) 69,768 Contribution margin (a) - (b) 64,632 Fixed cost 33,500 Operating income 31,132