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				$	4.40
Kitchen staff	$	5,910
Utilities	$	610		$	0.30
Delivery person							$	3.10
Delivery vehicle	$	630					$	1.50
Equipment depreciation	$	400
Rent	$	1,870
Miscellaneous	$	730		$	0.15

  

In November, the pizzeria budgeted for 1,560 pizzas at an average selling price of $15 per pizza and for 220 deliveries.

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

  

	Actual Results
Pizzas		1,660
Deliveries		200
Revenue	$	25,450
Pizza ingredients	$	7,210
Kitchen staff	$	5,850
Utilities	$	885
Delivery person	$	620
Delivery vehicle	$	986
Equipment depreciation	$	400
Rent	$	1,870
Miscellaneous	$	790

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

• All working forms part of the answer
• While preparing Flexible Budget, Variable cost changes as per activity, while Fixed cost remains same as Budgeted.
• Requirement solved:

	Actual Results	Spending Variances		Flexible Budget	Activity Variances		Planning Budget
Pizzas	1,660			1,660			1,560
Deliveries	200			200			220
Revenues	$        25,450.00	$                                   550.00	Favourable	$                     24,900.00	$                          1,500.00	Favourable	$        23,400.00
Expenses:
Pizza Ingrediants	$          7,210.00	$                                     94.00	Favourable	$                       7,304.00	$                              440.00	Unfavourable	$          6,864.00
kitchen Staff	$          5,850.00	$                                     60.00	Favourable	$                       5,910.00	$                                       -	None	$          5,910.00
Utilities	$              885.00	$                                   223.00	Favourable	$                       1,108.00	$                                30.00	Unfavourable	$          1,078.00
Delivery Person	$              620.00	$                                            -	None	$                           620.00	$                                62.00	Favourable	$              682.00
Delivery Vehicle	$              986.00	$                                     56.00	Unfavourable	$                           930.00	$                                30.00	Favourable	$              960.00
Equipment Depreciation	$              400.00	$                                            -	None	$                           400.00	$                                       -	None	$              400.00
Rent	$          1,870.00	$                                            -	None	$                       1,870.00	$                                       -	None	$          1,870.00
Miscellaneous	$              790.00	$                                   189.00	Favourable	$                           979.00	$                                15.00	Unfavourable	$              964.00
Total Expenses	$        18,611.00	$                                   510.00	Favourable	$                     19,121.00	$                              393.00	Unfavourable	$        18,728.00
Net Operating Income	$          6,839.00	$                               1,060.00	Favourable	$                       5,779.00	$                          1,107.00	Favourable	$          4,672.00

• Working for above:

	Actual Results	Flexible Budget	Planning Budget
Pizzas	1660	1660	1560
Deliveries	200	200	220
Revenues	25450	=1660*15	=1560*15
Expenses:
Pizza Ingrediants	7210	=1660*4.4	=1560*4.4
kitchen Staff	5850	5910	5910
Utilities	885	=610+(1660*0.3)	=610+(1560*0.3)
Delivery Person	620	=3.1*200	=3.1*220
Delivery Vehicle	986	=630+(1.5*200)	=630+(1.5*220)
Equipment Depreciation	400	400	400
Rent	1870	1870	1870
Miscellaneous	790	=730+(0.15*1660)	=730+(0.15*1560)
Total Expenses	Total Expenses	Total Expenses	Total Expenses
Net Operating Income	Net Operating Income	Net Operating Income	Net Operating Income