In: Accounting
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.)
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 |
||||
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 |
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