Question

Cicchetti Corporation uses customers served as its measure of activity. The following report compares the planning budget to the actual operating results for the month of December:

Cicchetti Corporation Comparison of Actual Results to Planning Budget For the Month Ended December 31
	Actual Results		Planning Budget		Variances
Customers served		29,000		28,000
Revenue (3.40q)	$	98,800	$	95,200	$	3,600	F
Expenses:
Wages and salaries ($22,800 + $1.18q)		57,020		55,840		1,180	U
Supplies ($0.58q)		14,540		16,240		1,700	F
Insurance ($4,700)		4,700		4,700		0
Miscellaneous expense ($3,700 + $.38q)		12,640		14,340		1,700	F
Total expense		88,900		91,120		2,220	F
Net operating income	$	9,900	$	4,080	$	5,820	F

Required:

1.	Prepare a report showing the company’s revenue and spending variances for December. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Answer 1

Ans.	Cicchetti Corporation
	Flexible Budget Performance Report
	For the Month of December
		Actual Results	Revenue & Spending variance	Flexible Budget
	Customers served	29,000			29,000
	Revenue	$98,800	$200	F	$98,600
	Expenses:
	Wages and salaries	$57,020	$0	none	$57,020
	Supplies	$14,540	$2,280	F	$16,820
	Insurance	$4,700	$0	none	$4,700
	Miscellaneous expense	$12,640	$2,080	F	$14,720
	Total expenses	$88,900	$4,360	F	$93,260
	Net operating income	$9,900	$4,560	F	$5,340
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as planning budget.
	*Calculation of Flexible budget:
		Flexible Budget
	Customers served	29,000
	Revenue	$3.40 * 29,000
	Expenses:
	Wages and salaries	$22,800 + (29,000 * $1.18)
	Supplies	$0.58 * 29,000
	Insurance	$4,700
	Miscellaneous expense	$3,700 + (29,000 * $0.38)
	Revenue & Spending variance   =   Actual results - Flexible budget
	*Increase in revenue or net operating income from flexible budget to actual results =   Favorable.
	*Decrease in revenue or net operating income from flexible budget to actual results =   Unfavorable.
	*Increase in expenses from flexible budget to actual results =   Unfavorable.
	*Decrease in expenses from flexible budget to actual results =   Favorable.