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				$	4.10
Kitchen staff	$	6,290
Utilities	$	800		$	0.20
Delivery person							$	3.00
Delivery vehicle	$	820					$	2.20
Equipment depreciation	$	552
Rent	$	2,250
Miscellaneous	$	920		$	0.10

  

In November, the pizzeria budgeted for 2,130 pizzas at an average selling price of $18 per pizza and for 250 deliveries.

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

  

	Actual Results
Pizzas		2,230
Deliveries		230
Revenue	$	40,880
Pizza ingredients	$	10,630
Kitchen staff	$	6,230
Utilities	$	980
Delivery person	$	690
Delivery vehicle	$	1,024
Equipment depreciation	$	552
Rent	$	2,250
Miscellaneous	$	904

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

Ans.	MILANO PIZZAS
	Flexible Budget Performance Report
	For the Month Ended NOVEMBER 30
		Actual results	Revenue & Spending variance		Flexible budget	Sales Activity variance		Planning Budget
	Pizzas	2230			2230			2130
	Deliveries	230			230			250
	Revenue	40880	740	F	40140	1800	F	38340
	Expenses:		0	F
	Pizza ingredients	10630	1487	U	9143	410	U	8733
	Kitchen staff	6230	60	F	6290	0	no effect	6290
	Utilities	980	266	F	1246	20	U	1226
	Delivery person	690	0	no effect	690	60	F	750
	Delivery vehicle	1024	302	F	1326	44	F	1370
	Equipment depreciation	552	0	no effect	552	0	no effect	552
	Rent	2250	0	no effect	2250	0	no effect	2250
	Miscellaneous	904	239	F	1143	10	U	1133
	Total expenses	23260	620	F	22640	336	U	22304
	Net operating income	17620	120	F	17500	1464	F	16036
	*Calculations for Flexible budget & Planning budget:
		Flexible budget	Planning budget
		Calculation	Calculation
	Pizzas	2230	2130
	Deliveries	230	250
	Revenue	2230*18	2230*18
	Expenses:
	Pizza ingredients	4.10*2230	4.10*2130
	Kitchen staff	6290	6290
	Utilities	800+(0.20*2230)	800+(0.20*2130)
	Delivery person	3*230	3*250
	Delivery vehicle	820+(2.20*230)	820+(2.20*250)
	Equipment depreciation	552	552
	Rent	2250	2250
	Miscellaneous	920+(0.10*2230)	920+(0.10*2130)
	*Flexible budget is prepared on the basis of actual sales volume (units).
	*Fixed expenses remain same in flexible budget as master budget.
	*Revenue and spending variance = Actual results - Flexible budget.
	*Activity variance = Flexible budget - Planning budget.
	*Increase in revenue and net income from Flexible to Actual and Planning to flexible = Favorable.
	*Decrease in revenue and net income from Flexible to Actual and Planning to flexible = Unfavorable.
	*Increase in costs from flexible to actual and planning to flexible = Unfavorable.
	*Decrease in costs from flexible to actual and planning to flexible = Favorable.