Question

Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,100 pounds of oysters in August. The company’s flexible budget for August appears below:

Quilcene Oysteria
Flexible Budget
For the Month Ended August 31
Actual pounds (q)		7,100
Revenue ($4.15q)	$	29,465
Expenses:
Packing supplies ($0.40q)		2,840
Oyster bed maintenance ($3,300)		3,300
Wages and salaries ($2,400 + $0.35q)		4,885
Shipping ($0.60q)		4,260
Utilities ($1,230)		1,230
Other ($420 + $0.01q)		491
Total expense		17,006
Net operating income	$	12,459

The actual results for August appear below:

Quilcene Oysteria
Income Statement
For the Month Ended August 31
Actual pounds		7,100
Revenue	$	27,300
Expenses:
Packing supplies		3,010
Oyster bed maintenance		3,160
Wages and salaries		5,295
Shipping		3,990
Utilities		1,040
Other		1,111
Total expense		17,606
Net operating income	$	9,694

Required:

Calculate the company’s revenue and spending variances for August. (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

• Requirement

	Revenue & Spending Variance
	[B = Difference between ‘actual’ & ‘flexible budget’]
Revenues	$2,165	U
Expenses:
Packing supplies	$170	U
Oyster bed maintenance	$140	F
Wages & Salaries	$410	U
Shipping	$270	F
Utilities	$190	F
Other	$620	U
Total Expenses	$600	U
Net Operating Income	$2,765	U

Conceptual notes:

#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'

#2: Spending Variance = Difference between 'Actual data' and 'Flexible Budget data'

#3: Activity Variance = Difference between 'Flexible Budget data' and 'Static/Planned Budget data'.

* Favourable Variance in case of Revenues occurs when:

>Actual revenues are MORE than Flexible budget revenues [Spending Variance]

>Flexible budget revenues are MORE than Static/Planned budget revenues [Activity Variance]

* Unfavourable Variance in case of Revenues occurs when:

>Actual revenues are LESS than Flexible budget revenues [Spending Variance]

>Flexible budget revenues are LESS than Static/Planned budget revenues [Activity Variance]

* Favourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are LESS than Flexible budget expense/costs [Spending Variance]

>Flexible budget expenses/costs are LESS than Static/Planned budget expenses/costs [Activity Variance]

* Unfavourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are MORE than Flexible budget expense/costs [Spending Variance]

>Flexible budget expenses/costs are MORE than Static/Planned budget expenses/costs [Activity Variance]