WMBA 6050 Week 5 Flexible Budget Variance Report Example

July Missed Plan by $86,000, and a Third of It Was Within Management's Control: A Flexible-Budget Variance Report for a Golf Club That Sorts Each Variance by Who Could Have Controlled It and Sends Each One a Question

Student Name

Walden University

WMBA 6050: Accounting for Management Decision Making

Instructor Name

Month Day, Year

July Missed Plan by $86,000, and a Third of It Was Within Management's Control: A Flexible-Budget Variance Report for a Golf Club That Sorts Each Variance by Who Could Have Controlled It and Sends Each One a Question

Why July

July is Briar Hollow Golf Club's biggest month, and this year it fell well short of the budget prepared in Week 4. The club, an invented public course with a busy banquet room, earned about $86,000 less contribution in July than planned. The general manager's first reaction was to blame six rainy days. Rain did cost money, about two-thirds of the shortfall, but a flexible budget shows that roughly a third came from decisions made at the club. This report computes the variances, sorts them by whether anyone at the club could have controlled them and sends each controllable variance to the person responsible with a specific question.

The Flexible Budget

Comparing July's results with the original plan treats 6,380 expected rounds as if they had been played. Recasting the July plan at the 5,700 rounds actually played isolates what weather did to volume from what managers did with prices and costs once those rounds arrived (Datar & Rajan, 2021). For a golf course, where volume depends heavily on weather, the distinction is essential.

Table 1

July: Static Budget, Flexible Budget and Actual

U = unfavorable, F = favorable. The restaurant flexible budget uses actual sales of $149,000 at the 32 percent food cost standard; composite figures.

The volume variance on golf revenue, about $47,900, is the cost of 680 lost rounds. Net of the variable costs those rounds would have incurred, the volume shortfall cost about $37,900 of contribution. The remaining variances, about $42,400 together, plus a smaller restaurant revenue shortfall from the closed patio, arose at the volume the club actually achieved. Rain explains the first figure. It does not explain the second.

Sorting by Controllability

The controllability principle holds that managers should be held accountable mainly for results they can significantly influence (Merchant & Van der Stede, 2017). Applying it means asking, for each variance, whether anyone at the club could have changed it in the period.

The volume variance is uncontrollable. Six days of rain in July are beyond any manager's reach, and the course cannot sell rounds no one wants to play.

The green fee price variance, about $13,100, looks like weather but is not. Average revenue per round fell from the planned $70.40 to $68.10 because a larger share of July's rounds came at the new weekday twilight rate. The twilight rate was a management decision, and the question is whether it drew new players or shifted existing ones to a cheaper time.

The course variable cost variance, about $8,300, came mostly from cart repairs: four carts needed new controllers after the rain, and the mechanic ordered parts by overnight freight. Part is weather; the freight premium is not.

The course fixed cost variance, about $11,600, has two parts. About $7,200 was overtime for cleanup after a July 14 storm, which was not controllable. About $4,400 was a fertilizer price increase the purchasing manager accepted mid-season without seeking a second quote.

The restaurant food cost variance, about $4,600, also has two parts. Beef prices rose about 12 percent in June, which explains roughly $2,100 and was not controllable in the short term. The remaining $2,500 reflects usage above standard, and the chef's waste log shows more prepared food discarded on rainy days when the patio closed.

The banquet labor variance, about $4,800, is fully controllable. The banquet captain scheduled the standard crew for every event, including four events of under 80 guests.

Routing Each Controllable Variance

Table 2

Controllable Variances, Owners and the Question Each Receives

Amounts are rounded; composite figures.

Each question asks for a decision, not an explanation. Garrison et al. (2021) caution that variance reports become ritual when they are used mainly to assign blame; framing each as a question about next month's practice keeps the report useful.

What Not to Route

Three variances go to no one: the rain-driven volume loss, the storm cleanup overtime and the beef price increase. Sending them to managers would teach the managers that the report is unfair and would bury the controllable items, which together total about $28,000 in one month, under weather that no one can change. The report should state these plainly as uncontrollable, listing each with its amount and its cause in a separate section of the summary, so the owner sees the full picture without the managers being judged on it.

Summary for the Owner

July missed plan by about $86,000 in contribution once the roughly $5,600 lost when the patio closed is included. About $56,000 of that is weather in some form: lost rounds, the closed patio, storm cleanup and most of the cart repairs. About $2,100 is the beef price increase. About $28,000 is controllable and has been routed with questions, and almost half of that is the twilight pricing decision, which needs another month of data before it can be judged.

References

Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial accounting (17th ed.). McGraw Hill.

Merchant, K. A., & Van der Stede, W. A. (2017). Management control systems: Performance measurement, evaluation and incentives (4th ed.). Pearson.