Question

Assume that The AM Bakery is preparing a budget for the month ending December 31. Management prepares the budget for the month ending December 31 by starting with the actual results for August that is shown below. Then, management considers what the differences in costs will be between August and December.

THE AM BAKERY
Bakery sales
Actual and Budgeted Costs
For the Month Ending August 31
	Actual
Ingredients
Flour	$	3,900
Butter		3,500
Oil		1,700
Fruit		1,300
Nuts		900
Chocolate		800
Other		400
Total ingredients	$	12,500
Labor
Channel manager	$	4,500
Other		10,700
Utilities		2,400
Rent		3,600
Marketing		200
Total bakery costs	$	33,900
Revenues		52,200

Management expects revenue to be 100 percent greater in December than in August because of the holiday season. Management expects that all food costs (e.g., flour, butter, and so on) will be 120 percent higher in December than in August because of the increase in sales and because prices for ingredients are generally higher in the high demand holiday months. Management expects “other” labor costs to be 130 percent higher in December than in August, partly because more labor will be required in December and partly because employees will get a pay raise. The manager will get a pay raise that will increase his salary from $4,500 in April to $5,000 in December. Utilities will be 15 percent higher in December than in August. Rent and marketing will be the same in December as in August.

Now, move ahead to January of the following year and assume the following actual results occurred in December:

Required:

a. Prepare a statement that compares the budgeted and actual costs. (Negative amounts should be indicated by a minus sign.)

		actual	budgeted	difference

Answer 1

Budget For the Month of December of AM Bakery
	August (Actual)	Change	December (Budgeted)
Ingredients
Flour	$         3,900	120% higher, means 220% of August	$                          8,580
Butter	$         3,500	$                          7,700
Oil	$         1,700	$                          3,740
Fruits	$         1,300	$                          2,860
Nuts	$            900	$                          1,980
Chocolate	$            800	$                          1,760
Other	$            400	$                             880
Total ingredients	$       12,500		$                        27,500
Labor
Channel manager	$         4,500	$500 increase	$                          5,000
Other	$       10,700	130% higher, means 230% of August	$                        24,610
Utilities	$         2,400	15% higher, means 115% of August	$                          2,760
Rent	$         3,600	Same as August	$                          3,600
Marketing	$            200	Same as August	$                             200
Total bakery costs	$       33,900		$                        63,670
Revenue	$       52,200	100% greater, means 200% of August	$                     104,400

Statement Showing Comparison Between Actual and Budgeted Costs and Revenue
	Actual (August)	Budgeted (December)	Difference (Budgeted - Actual)
Ingredients
Flour	$              3,900	$                         8,580	$                          4,680
Butter	$              3,500	$                         7,700	$                          4,200
Oil	$              1,700	$                         3,740	$                          2,040
Fruits	$              1,300	$                         2,860	$                          1,560
Nuts	$                 900	$                         1,980	$                          1,080
Chocolate	$                 800	$                         1,760	$                             960
Other	$                 400	$                             880	$                             480
Total ingredients	$           12,500	$                       27,500	$                       15,000
Labor
Channel manager	$              4,500	$                         5,000	$                             500
Other	$           10,700	$                       24,610	$                       13,910
Utilities	$              2,400	$                         2,760	$                             360
Rent	$              3,600	$                         3,600	Nil
Marketing	$                 200	$                             200	Nil
Total bakery costs	$           33,900	$                       63,670	$                       29,770
Revenue	$           52,200	$                     104,400	$                       52,200

Note: I have also comapre Revenue if not required please ignore it.

In case of change in manager's salary it is mention that, 'The manager will get a pay raise that will increase his salary from $4,500 in April to $5,000 in December.' I think the month will be August not April.