Question

Budget Variance Analysis

Hertzler Corporation uses customers served as its measure of activity. During November, the company budgeted for 23,000 customers, but actually served 25,000 customers. The company uses the following revenue and cost formulas in its budgeting, where q is the number of customers served:

Revenue: $7.25q
Wages and salaries: $30,500 + $2.30q
Supplies: $0.80q
Insurance: $6,200
Miscellaneous: $8,750 + $0.30q
The company reported the following actual results for November:

Revenue	$ 185,000
Wages	$ 95,000
Supplies	$ 19,500
Insurance	$ 6,500
Misc	$ 15,000

  

Required:

Prepare a net income report showing the company's revenue and spending variances for November. Label each variance as favorable (F) or unfavorable (U). Make sure it is formatted based on an income statement and show the actual and the budgeted side by side. (2 questions in 1 – Create Budget, then Compare Budget with Actual results, which will allow to figure the amount of variance and if it is Favorable or Unfavorable)

Answer 1

Ans.	HERTZLER    CORPORATION
	Revenue and Spending Varinance
	For the Month Ended November 30
		Actual Results	Revenue & Spending variance		Flexible Budget
	Customers served	25,000			25,000
	Revenue	$185,000	$3,750	F	$181,250
	Expenses:
	Wages and salaries	$95,000	$7,000	U	$88,000
	Supplies	$19,500	-$500	F	$20,000
	Insurance	$6,500	$300	U	$6,200
	Miscellaneous expense	$15,000	-$1,250	F	$16,250
	Total expenses	$136,000	$5,550	U	$130,450
	Net operating income	$49,000	-$1,800	U	$50,800
	*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	25,000
	Revenue	$7.25 * 25,000
	Expenses:
	Wages and salaries	$30,500 + (25,000 * $2.30)
	Supplies	$0.80 * 25,000
	Insurance	$6,200
	Miscellaneous expense	$8,750 + (25,000 * $0.30)
	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.