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 May as shown below:

	Fixed Element per Month		Variable Element per Customer Served			Actual Total for May
Revenue			$	6,600		$	213,500
Employee salaries and wages	$	62,000	$	2,300		$	141,100
Travel expenses			$	540		$	15,700
Other expenses	$	41,000				$	38,900

When preparing its planning budget the company estimated that it would serve 30 customers per month; however, during May the company actually served 35 customers.

Foundational 9-1

Required:

A. What amount of revenue would be included in Adger’s flexible budget for May?

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

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

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

E. What net operating income would appear in Adger’s flexible budget for May?

F. What is Adger’s revenue variance for May? (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

flexible budget takes into account planned cost for actual output

fixed costs however remains same as planned

A.revenue = Budgeted cost per customer*Number of customers

=$6,600*35

=$231,000

B.Employees' salaries and wages

= Fixed cost+variable costs

= $62,000+ 35*$2,300

=$142,500

C.Travel expense = Budgeted cost per cutomer*actual customers

=$540*35

=$18,900

D.other expense = fixed costs+ Variable cost

= $41,000+$0

=$41,000

E.Operatng income as flexible budget

revenue		$231,000
Less:Employees salaries and wages	$142,500
Travel expense	$18,900
Other expense	$41,000
		$202,400
Net income		$28,600

F.Variances = difference between flexible budget and actual results

	Actual results	Flexible budget	Variances
Revenue	$213,500	$231,000	$17,500 U [$213,500-231,00]	As the actual revenue<flexible budgeted revenue the variance is unfavorable
Less:Employees salaries and wages	$141,100	$142,500	$1,400 F [$141,100-142,500]	As the actual expense is <flexible budget expense the variance is favorable
Travel expense	$15,700	$18,900	$3,200 F [$15,700-18,900]	As the actual expense is <flexible budget expense the variance is favorable
Other expense	$38,900	$41,000	$2,100 F [$38,900-41,000]	As the actual expense is <flexible budget expense the variance is favorable
Net Income	$17,800[$213,500-15,700-38,900-141,100]	$28,600	$10,800 U

Please upvote if you find this helpful. incase of query please comment.