28.03.2023 - 08:49

Student Finance (StuFi) is a startup that aims to use the power of social communities to transform the student loan market. It connects participants through a dedicated lending pool, enabling current

Question:

Student Finance (StuFi) is a startup that aims to use the power of social communities to transform the student loan market. It connects participants through a dedicated lending pool, enabling current students to borrow from a school’s alumni community. StuFi’s revenue model is to take an upfront fee of 40 basis points (0.40%) each from the alumni investor and the student borrower for every loan originated on its platform.

StuFi hopes to go public in the near future and is keen to ensure that its financial results are in line with that ambition. StuFi’s budgeted and actual results for the third quarter of 2014 are presented below.

Static Budget Actual Results
New loans originated 8,200 10,250
Average amount of loan $145,000 $162,000
Variable costs per loan
Professional labor $360 (8 hrs at $45 per hour) $475 (9.5 hrs at $50 per hour)
Credit verification $100 $100
Federal documentation fees $120 $125
Courier services $50 $54
Administrative costs (fixed) $800,000 $945,000
Technology costs (fixed) $1,300,000 $1,415,000

1. Prepare StuFi’s static budget of operating income for the third quarter al 2014.

2. Prepare an analysis of variances for the third quarter of 2014 along the lines of Exhibit; identify the sales volume and flexible budget variances for operating income.

3. Compute the professional labor price and efficiency variances for the third quarter of 2014.

4. What factors would you consider in evaluating the effectiveness of professional labor in the third quarter of 2014?

Answers (1)
  • Connie
    April 8, 2023 в 11:49
    1. Static Budget of Operating Income for Third Quarter 2014: - Total revenue from new loans: 8,200 x $145,000 = $1,189,000,000 - Total variable costs: (8,200 x $360) + (8,200 x $100) + (8,200 x $120) + (8,200 x $50) = $3,869,000 - Total fixed costs: $800,000 + $1,300,000 = $2,100,000 - Operating income = Total revenue - Total variable costs - Total fixed costs = $1,189,000,000 - $3,869,000 - $2,100,000 = $1,183,131,000 2. Variance Analysis for Third Quarter 2014: Sales Volume Variance: - Static budget operating income = $1,183,131,000 - Flexible budget operating income = (10,250 x $162,000) - [(10,250 x $360) + (10,250 x $100) + (10,250 x $120) + (10,250 x $50) + $945,000 + $1,415,000] = $1,556,250 - Sales volume variance = Actual operating income - Static budget operating income = $1,556,250 - $1,183,131,000 = $ -1,181,574,750 (unfavorable) Flexible Budget Variance: - Flexible budget operating income = $1,556,250 - Actual operating income = (10,250 x $162,000) - [(9.5 x $50 x 10,250) + (10,250 x $100) + (10,250 x $125) + (10,250 x $54) + $945,000 + $1,415,000] = $1,594,250 - Flexible budget variance = Actual operating income - Flexible budget operating income = $1,594,250 - $1,556,250 = $38,000 (favorable) 3. Professional Labor Price and Efficiency Variances for Third Quarter 2014: - Actual cost of professional labor per hour = $475/9.5 = $50 - Budgeted cost of professional labor per hour = $45 - Actual hours of professional labor = 9.5 x 10,250 = 97,375 - Budgeted hours of professional labor = 8 x 8,200 = 65,600 - Professional labor price variance = Actual hours x (Actual rate - Budgeted rate) = 97,375 x ($50 - $45) = $243,437.50 (unfavorable) - Professional labor efficiency variance = Budgeted rate x (Actual hours - Budgeted hours) = $45 x (97,375 - 65,600) = $1,434,000 (unfavorable) 4. Factors to Consider in Evaluating Professional Labor Effectiveness: - Quality and accuracy of work performed - Timeliness and efficiency of completing tasks - Communication and collaboration with team members - Adherence to budgeted hours and rates - Contribution to overall company goals and objectives - Feedback from supervisors and/or clients
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