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				$	4.30
Kitchen staff	$	6,110
Utilities	$	710		$	0.30
Delivery person							$	3.10
Delivery vehicle	$	730					$	1.30
Equipment depreciation	$	480
Rent	$	2,070
Miscellaneous	$	830		$	0.15

  

In November, the pizzeria budgeted for 1,860 pizzas at an average selling price of $17 per pizza and for 240 deliveries.

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

  

	Actual Results
Pizzas		1,960
Deliveries		220
Revenue	$	33,970
Pizza ingredients	$	9,010
Kitchen staff	$	6,050
Utilities	$	935
Delivery person	$	682
Delivery vehicle	$	1,006
Equipment depreciation	$	480
Rent	$	2,070
Miscellaneous	$	850

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

Particulars	Budgeted Figures	Actual Figures	Variances	Fav/Unfav/None
(A) Revenue	33,320	33,970	650	F
(B) Variable Expenses:-
Pizza Ingredients (i)	8,428	9,010	582	U
Utilites (ii)	588	225	363	F
Delivery Person(iii)	682	682	0	None
Delivery Vehicle(iv)	286	276	10	F
Miscellanous(v)	294	20	274	F
Total Variable Exp.(i+ii+iii+iv+v)	10,278	10,213	65	F
(C) Contribution Margin (A-B)	23,042	23,757	715	F
(D) Fixed Expenses:-
Kitchen Staff (i)	6,110	6,050	60	F
Utilites (ii)	710	710	0	None
Delivery Vehicle(iii)	730	730	0	None
Equipment Depreciation(iv)	480	480	0	None
Rent (v)	2,070	2,070	0	None
Miscellanous (vi)	830	830	0	None
Total Fixed Exp.(i+ii+iii+iv+v+vi)	10,930	10,870	60	F
Income From Operations (C-D)	12,112	12,887	775	F

(i) Assumed that Delivery vehicle actuals should be bifurcated in Variable & fixed and fixed charges are taken as per budget and other than this taken as variables.

(ii) Assumed that Utilites actuals should be bifurcated in Variable & fixed and fixed charges are taken as per budget and other than this taken as variables.

(ii) Assumed that Miscellanous actuals should be bifurcated in Variable & fixed and fixed charges are taken as per budget and other than this taken as variables.

(iv) Calculation of Budgeted figures are on basis of Actual consumption of Pizza and Delivery as 1960 and 220.