Question

In: Accounting

Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas...

Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas and actual results for the month of June:

Fixed Element
per Month
Variable Element
per Liter
Actual Total
for June
Revenue $ 21.00 $ 133,540
Raw materials $ 5.55 $ 37,130
Wages $ 6,500 $ 2.30 $ 21,300
Utilities $ 2,530 $ 1.10 $ 10,000
Rent $ 3,500 $ 3,500
Insurance $ 2,250 $ 2,250
Miscellaneous $ 740 $ 1.25 $ 8,790

While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $6,500 plus $2.30 per liter of gelato sold and the actual wages for June were $21,300. Via Gelato expected to sell 6,400 liters in June, but actually sold 6,600 liters.

Required:

Calculate Via Gelato revenue and spending variances for June. (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.)

Solutions

Expert Solution

Solution:

Revenue and spending variance is the difference between actual result and flexible budget result.

Flexible Budget is the budget prepared based on the actual activity level achieved during the period at standard rate.

Via Gelato
Report for Revenue and Spending Variance for June

Actual Result

Revenue and Spending Variance

Flexible Budget

Activity Level (liters)

6,400

6,400

Revenue

$133,540

$860

U

$134,400

(6400*21)

Expenses:

Raw materials

$37,130

$1,610

U

$35,520

(6400*5.55)

Wages

$21,300

$80

U

$21,220

(6400*2.3+500)

Utilities

$10,000

$430

U

$9,570

(6400*1.1+2530)

Rent

$3,500

$0

NONE

$3,500

Insurance

$2,250

$0

NONE

$2,250

Miscellaneous

$8,790

$50

U

$8,740

(6400*1.25+740)

Total Expenses

$82,970

$2,170

U

$80,800

Operating Income (Revenue - Total Expenses)

$50,570

$3,030

U

$53,600

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you


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