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Hi
In December 2009 exam , Question 1 (a) , the budget Tuition fee for 8000 students per annum is given as $720,000.
Actual number of students for year ended 30 November 09 is: 6900. And in answers the figure for Tuition material is taken as $92,000.
Can you please tell me how did they came out with $92,000 tuition material cost ?
Thanks
Two things….
Firstly you have read the wrong line – the tuition materials in the answer are 648,000 (92000 is the catering)
Secondly, to make comparing actual with budget useful for costs they have flexed the costs budget and calculated the budget cost for the actual number of students, which is 7200. So the calculation is 7200/8000 x 720,000 = 648000
Thank you for your support John.
A good question by Hamid.
So by this you mean that what we call a ‘flex budget’ is actually flexed according to the ACTUAL DEMAND and than a new ‘budget’ is created to reflect the actual level of activity ?
what i actually wanted to know is that how will we know that we have to use that actual demand for the calculation.
actually in Dec 2009 Q.1 the examiner has stated in the question that “Variable cost vary according to the number of students attending the courses at BEC”.
however nothing has been stated in the pilot paper question and still flex budgeting is used for both income n expenditure .
is it that for this type of question we should use the flex budgeting whether or not stated in the question…..???
please help.If the question mentions that the budgeted figures are for certain level of activity and the actual level of activity is also mentioned, than probably you have to flex the budget to draw a fairer comparison.
Pleasure @neeru.
all the best!
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Dec 2009 1st question variable expenses have been flexed for 6900 students but revenues are not. Then how could it be the fair comparision. Please any one help me to clarify my doubt.
It is a bit confusing, and the examiner did allow alternative answers. More obvious would be to flex both the revenue and the variable expenses (and this would have got full marks).
Certainly the costs have to be flexed since the question wanted the budgets to be comparable.
His logic in not flexing the revenue is that for revenue we are more interested in why it is different from the original budget.
However, what he has done is not a standard rule, and so do not worry too much about it.I was wandering here and there to ask the same question but was not satisfied. I am grateful to you all and especially OpenTuition Team and Honourable Tutor. Previously, I didnot get support from OpenTuition, but I will recommend it.
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