1) The company's revenues exceeded budget but profits decreased significantly due to a large increase in expenses. 2) A variance analysis of revenues and expenses found that hours billed and average billing rate variances led to a $32,010 unfavorable total variance. 3) An analysis of operating expenses found a $61,260 unfavorable total variance due to unfavorable volume and spending variances.

1. SOFTWARE ASSOCIATES
CASE ANALYSIS
SUBMITTEDBY:
GROUP-
KANCHAN GUPTA-
MADHULIKA RAJ-
MOHITLALCHANDANI-
VISHNU AGARWAL-
RIDDHIJAIN-183

2. Software Associates
BriefHistory:
Software AssociateswasfoundedbyRichardNortontenyearsagoto performsystemintegration
projectsforclients.Initiallyitwassetupto operate inclientserver environments andnow ithadgrown
to makingwebapplicationswiththe pace of technological evolution.Ithastwotypesof servicestooffer
to clients-
1)SolutionsBusiness-ThisBusinesshelpedclientsrapidlydeveloptargetedmanagementstrategies,and
thenmobilizedbusinessandtechnologyresourcestodeliversoftwaresolutions.
2)Contract Business- ThisBusinessofferedclientsexperience software engineers,programmers,and
consultants,ona shortterm projectbasis,tohelpthe clientsimplementtheirownITtoolsand
solutions.
Recentlythe companynoticedthatinspite of increase inrevenuetheirprofitisnotincreasingandon
the hand showedlowerprofitpercentage thanthe usual 15-20% range.
Withthe helpof belowmade analysiswe have triedourbesttoacknowledge the reasonsforthe same.
Question1: Prepare a variance analysisreport based on the informationin Exhibit1. Wouldthis be
sufficienttoexplainthe profitshortfall to Norton at the 8AM Meeting?
Ans : Basedon Exhibit1:
Analysis:
Actual Revenues have exceeded budgeted revenues butstill ourprofithas decreaseddrastically, from
exhibit1we can see that our expenseshave increasedsignificantlyand hence lowerprofits.

3. Variance analysisreport based on the informationin exhibit2:
We can see here,variance for revenue andhours billedisfavorable whereas,for average billingrate
it’s unfavorable.
Sumof Hours variance andaverage billingrate variance isequal toConsultingRevenue variance.
Thus,$278,100 - $246,090 = $32,010.
Question3: Prepare a spendingand volume variance analysisof operatingexpenses basedon the
additional informationsuppliedinExhibit 3.
From Exhibit3we can deduce following:
Particulars Actual Budgeted Variance
Hours billed 39000 35910
Average billingrate 83.69 90
Total consultingrevenue variance 32010
Hours billedvariance 278100
Average billingrate variance -246090

4. Analysis:
The case tellsusthat the budgetedexpenseswere neitherentirelyvariablenorentirelyfixed during the
quarterand basedon theirvariance percentage we can say that major chunk of this expense is varying
for administration, information systems, dues and subscription ,education, office expense, office
supplies, postage, telephone ,travel and entertainment. These have variable percentages more than
80% which means we cannot certainly predict our budgeted expense due to this variability.
So our total actual expensesfromthe table=$938,560
Andtotal budgetedexpenses=$877,300
Therefore difference inexpense=938,560-877,300=61,260
And,we know
FixedExpense=BudgetedExpense–Variable Expense
Total Variable Expense =$525,000
Therefore Total FixedExpense=$877,300-$525,000=$352,300
No of BudgetedConsultants=105
Therefore,
Variable Expenseperconsultant=$525000/105 = $5000
Also,
Flexible budgetactual volume =Total FixedExpense+Total Actual Variable Expense
Total Actual Variable Expense =Variable Expenseperconsultant*Actual consultants
= 5000*113 = $565,000
Therefore,
Flexible budgetatactual volume = $352,300 + $565000 = $917,300
And,
SpendingVariance = Actual indirectexpenses –Flexible budgetatactual volume
= $938,560 - $917,300 = $21,260 (Unfavorable)
Volume Variance = (Actual Quantity – BudgetedQuantity)*ExpectedvariableExpense perunit
= (113-105)*5000 = $40,000 (unfavorable)

5. Therefore,
Total indirectexpensevariance =$61,260 = SpendingVariance +Volume Variance
= $21,260 + $40,000 = $61,260
Analysis:
Volume variance isunfavorable forusandso isspendingvariance.Sooverall $61,260 is the extracost
whichas a part of flexiblebudgetshouldhave beenreduced.
Question4: Prepare an analysisof the revenue change,separatingthe volume effect(increase in
numberof consultants) from the productivity effect(billingpercentage).
Analysisof volume effect
Actual Consultanthourssupplied 50850
Expectedconsultanthourssupplied 47250
Expectedbilling% 76%
Expectedbillingrate 90
Variance 246240
Result:Favorable
Analysisof productivity effect(Billing%)
Actual consultanthourssupplied 50850
Actual billing% 76.7%
Expectedbilling% 76%
Expectedbillingrate 90
Variance 31860
Result:Favorable
Analysis:
From the twotablesabove ourvolume variance is246240 and productivityvariance is31860 so our
total revenue variance is=246240+31850=278100 whichis favorable.

6. Question5: Prepare an analysisof actual versusbudgetedrevenuesconsultantexpensesandmargins
usingadditional informationin exhibit4.
Actual:
Budgeted:
So we get,
Contract Solutions Total
Pure billing
rate price
variance
48000 Favourable -121200 Unfavourable -73200 Unfavourable
Mixvariance -138240 Unfavourable -34560 Unfavourable -172800 Unfavourable
Revenue rate
variance
-90240 Unfavourable -155760 Unfavourable -246000 Unfavourable

7. Contract Solutions Total
Pure consultantcost price
variance
172800 Unfavourable - - 172800 Unfavourable
Mixvariance -25200 Favourable - - -25200 Favourable
Consultantexpense rate
variance
147600 Unfavourable - - 147600 Unfavourable
Conclusion:
If the company tries to improve its costing methods by reducing their expenses and aiming for
innovation and adapting to social environments it can expand and establish itself better.