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				$	4.20
Kitchen staff	$	6,090
Utilities	$	700		$	0.20
Delivery person							$	3.00
Delivery vehicle	$	720					$	1.20
Equipment depreciation	$	472
Rent	$	2,050
Miscellaneous	$	820		$	0.10

  

In November, the pizzeria budgeted for 1,830 pizzas at an average selling price of $16 per pizza and for 230 deliveries.

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

  

	Actual Results
Pizzas		1,930
Deliveries		210
Revenue	$	31,520
Pizza ingredients	$	8,830
Kitchen staff	$	6,030
Utilities	$	930
Delivery person	$	630
Delivery vehicle	$	1,004
Equipment depreciation	$	472
Rent	$	2,050
Miscellaneous	$	844

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

MILANO   PIZZA
	Flexible Budget Performance Report
	For the Month Ended November 30
		Actual Results	Revenue & Spending variance	Flexible budget	Volume variance	Planning Budget
	Pizzas	1,930			1,930			1,830
	Deliveries	210			210			230
	Revenue	$31,520	$640	F	$30,880	$1,600	F	$29,280
	Less: Expenses:
	Pizza ingredients	$8,830	$724	U	$8,106	$420	U	$7,686
	Kitchen staff	$6,030	$60	F	$6,090	$0	none	$6,090
	Utilities	$930	$156	F	$1,086	$20	U	$1,066
	Delivery person	$630	$0	none	$630	$60	F	$690
	Delivery vehicle	$1,004	$32	U	$972	$24	F	$996
	Equipment depreciation	$472	$0	none	$472	$0	none	$472
	Rent	$2,050	$0	none	$2,050	$0	none	$2,050
	Miscellaneous	$844	$169	F	$1,013	$10	U	$1,003
	Total expenses	$20,790	$371	U	$20,419	$366	U	$20,053
	Net operating income	$10,730	$269	F	$10,461	$1,234	F	$9,227
	*Calculations for Flexible budget & Planning budget:
			Flexible budget		Planning budget
	Pizzas		1,930		1,830
	Deliveries		210		230
	Revenue		1,930 * $16		1,830 * $16
	Less: Expenses:
	Pizza ingredients		1,930 * $4.20		1,830 * $4.20
	Kitchen staff		$6,090		$6,090
	Utilities		$700 + ($0.20 * 1,930)		$700 + ($0.20 * 1,830)
	Delivery person		$3 * 210		$3 * 230
	Delivery vehicle		$720 + ($1.2 * 210)		$720 + ($1.20 * 230)
	Equipment depreciation		$472		$472
	Rent		$2,050		$2,050
	Miscellaneous		$820 + ($0.10 * 1,930)		$820 + ($0.10 * 1,830)
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as master budget.
	Revenue & Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Increase in expenses & decrease in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses & increase in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Favorable.

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