Question

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

The pizzeria’s cost formulas appear below:

	Fixed Cost per Month			Cost per Pizza			Cost per Delivery
Pizza ingredients				$	4.50
Kitchen staff	$	6,150
Utilities	$	730		$	0.50
Delivery person							$	3.30
Delivery vehicle	$	750					$	1.50
Equipment depreciation	$	496
Rent	$	2,110
Miscellaneous	$	850		$	0.25

  

In November, the pizzeria budgeted for 1,920 pizzas at an average selling price of $19 per pizza and for 180 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

  

	Actual Results
Pizzas		2,020
Deliveries		160
Revenue	$	39,050
Pizza ingredients	$	9,370
Kitchen staff	$	6,090
Utilities	$	945
Delivery person	$	528
Delivery vehicle	$	1,010
Equipment depreciation	$	496
Rent	$	2,110
Miscellaneous	$	862

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

Answer:

	Actual Results	Revenue and spending variance		Flexible Budget	Planning Budget	Variance	Static Budget
Pizzas	$   2,020	$       -	None	$   2,020	$     100	Favorable	$          1,920
Deliveries	$      160	$       -	None	$      160	$       20	Unfavorable	$             180
Revenue	$ 39,050	$    670	Favorable	$ 38,380	$ 1,900	Favorable	$        36,480
Expenses
Pizza ingredients	$   9,370	$    280	Unfavorable	$   9,090	$     450	Unfavorable	$          8,640
Kitchen staff	$   6,090	$      60	Favorable	$   6,150	$        -	No effect	$          6,150
Utilities	$      945	$    795	Favorable	$   1,740	$       50	Unfavorable	$          1,690
Delivery person	$      528	$       -	None	$      528	$     (66)	Favorable	$             594
Delivery vehicle	$   1,010	$      20	Unfavorable	$      990	$     (30)	Favorable	$          1,020
Equipment depreciation	$      496	$       -	None	$      496	$        -	No effect	$             496
Rent	$   2,110	$       -	None	$   2,110	$        -	No effect	$          2,110
Miscellaneous	$      862	$    493	Favorable	$   1,355	$       25	Unfavorable	$          1,330
Total expenses	$ 21,411	$ 1,048	Favorable	$ 22,459	$     429	Unfavorable	$        22,030
Net operating Income	$ 17,639	$ 1,718	Favorable	$ 15,921	$ 1,471	Favorable	$        14,450

Calculations:

In case of any doubt, please comment.