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				$	4.80
Kitchen staff	$	6,210
Utilities	$	760		$	0.80
Delivery person							$	2.60
Delivery vehicle	$	780					$	1.80
Equipment depreciation	$	520
Rent	$	2,170
Miscellaneous	$	880		$	0.20

  

In November, the pizzeria budgeted for 2,010 pizzas at an average selling price of $14 per pizza and for 210 deliveries.

Data concerning the pizzeria’s actual results in November were as follows:

  

	Actual Results
Pizzas		2,110
Deliveries		190
Revenue	$	30,240
Pizza ingredients	$	9,910
Kitchen staff	$	6,150
Utilities	$	960
Delivery person	$	494
Delivery vehicle	$	1,016
Equipment depreciation	$	520
Rent	$	2,170
Miscellaneous	$	880

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.)

Milano Pizza Flexible Budget Performance Report For the Month Ended November 30 Actual Results Activity Variances Flexible Budget Revenue and Spending Variances Planning Budget Pizzas 2,110 Deliveries 190 Revenue $30,240 Expenses: Pizza ingredients 9,910 Kitchen staff 6,150 Utilities 960 Delivery person 494 Delivery vehicle 1,016 Equipment depreciation 520 Rent 2,170 Miscellaneous 880 Total expense 22,100 0 0 Net operating income $8,140 $0 $0

Answer 1

*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.