Question

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for June as shown below:

	Fixed Element per Month		Variable Element per Customer Served			Actual Total for May
Revenue			$	5,900		$	216,500
Employee salaries and wages	$	66,000	$	1,300		$	116,200
Travel expenses			$	580		$	19,700
Other expenses	$	45,000				$	42,500

When preparing its planning budget the company estimated that it would serve 35 customers per month; however, during May the company actually served 40 customers.

What amount of revenue would be included in Adger’s flexible budget for June?

What amount of employee salaries and wages would be included in Adger’s flexible budget for June?

What amount of travel expenses would be included in Adger’s flexible budget for June?

What amount of other expenses would be included in Adger’s flexible budget for June?

What net operating income would appear in Adger’s flexible budget for June?

What is Adger’s revenue variance for June?

What is Adger’s employee salaries and wages spending variance for June?

What is Adger’s travel expenses spending variance for June?

What is Adger’s other expenses spending variance for June?

What amount of revenue would be included in Adger’s planning budget for June?

What amount of employee salaries and wages would be included in Adger’s planning budget for June?

What amount of travel expenses would be included in Adger’s planning budget for June?

What amount of other expenses would be included in Adger’s planning budget for June?

What activity variance would Adger report in June with respect to its revenue?

What activity variances would Adger report with respect to each of its expenses for June?

Answer 1

1.

Flexible budget (Revenue) = 40 * $5,900 = $236,000

2.

Flexible budget (Employee salaries and wages) = $66,000 + $52,000(40*$1,300) = $118,000

3.

Flexible budget (Travel expenses) = 40 * $580 = $23,200

4.

Flexible budget (Other expenses) = $45,000

5.

Flexible budget (Net operating income) = $236,000-(118,000+23,200+45,000)

Flexible budget (Net operating income) = $236,000-$186,200 = $49,800

6.

Revenue variance = Actual revenue - Flexible budget revnue

Revenue variance = $216,500 - $236,000 = $19,500 Unfavorable

7.

Employee salaries and wages spending variance = Actual costs - Flexible budget cost

Employee salaries and wages spending variance = $116,200 - $118,000

Employee salaries and wages spending variance = $1,800 Favorable

8.

Travel expense spending variance = Actual costs - Flexible budget cost

Travel expense spending variance = $19,700 - $23,200 = $3,500 Favorable

9.

Other expense spending variance = Actual costs - Flexible budget cost

Other expense spending variance = $42,500 - $45,000 = $2,500 Favorable

10.

Planning budget (Revenue) = 35 * $5,900 = $206,500

11.

Planning budget (Employee salaries and wages) = $66,000 + $45,500(35*$1,300) = $111,500

12.

Planning budget (Travel expenses) = 35 * $580 = $20,300

13.

Flexible budget (Other expenses) = $45,000

14.

Activity variance (Revenue) = Flexible budget - Planning budget

Activity variance (Revenue) = $236,000 - $206,500 = $29,500 Favorable

15.

Employee salaries and wages activity variance = Flexible budget - Planning budget

Employee salaries and wages activity variance = $118,000 - $111,500 = $6,500 Unfavorable

16.

Travel expenses activity variance = Flexible budget - Planning budget

Travel expenses activity variance = $23,200 - $20,300 = $2,900 Unfavorable

17.

Other expenses activity variance = Flexible budget - Planning budget

Other expenses activity variance = $45,000 - $45,000 = $0