Question

Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,700 pounds of oysters in August. The company’s flexible budget for August appears below:

Quilcene Oysteria
Flexible Budget
For the Month Ended August 31
Actual pounds (q)		7,700
Revenue ($4.05q)	$	31,185
Expenses:
Packing supplies ($0.40q)		3,080
Oyster bed maintenance ($3,500)		3,500
Wages and salaries ($2,500 + $0.50q)		6,350
Shipping ($0.60q)		4,620
Utilities ($1,240)		1,240
Other ($500 + $0.01q)		577
Total expense		19,367
Net operating income	$	11,818

The actual results for August appear below:

Quilcene Oysteria
Income Statement
For the Month Ended August 31
Actual pounds		7,700
Revenue	$	27,500
Expenses:
Packing supplies		3,250
Oyster bed maintenance		3,360
Wages and salaries		6,760
Shipping		4,350
Utilities		1,050
Other		1,197
Total expense		19,967
Net operating income	$	7,533

Required:

Calculate the company’s revenue and spending variances for August. (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

• Requirement asked

	Revenue & Spending Variance
No. of pounds
Revenues	$3,685	U
Expenses:
Packing supplies	$170	U
Oyster bed maintenance	$140	F
Wages & Salaries	$410	U
Shipping	$270	F
Utilities	$190	F
Other	$620	U
Total Expenses	$600	U
Net Operating Income	$4,285	U

Conceptual notes:

#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'

#2: Spending Variance = Difference between 'Actual data' and 'Flexible Budget data'

#3: Activity Variance = Difference between 'Flexible Budget data' and 'Static/Planned Budget data'.

* Favourable Variance in case of Revenues occurs when:

>Actual revenues are MORE than Flexible budget revenues [Spending Variance]

>Flexible budget revenues are MORE than Static/Planned budget revenues [Activity Variance]

* Unfavourable Variance in case of Revenues occurs when:

>Actual revenues are LESS than Flexible budget revenues [Spending Variance]

>Flexible budget revenues are LESS than Static/Planned budget revenues [Activity Variance]

* Favourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are LESS than Flexible budget expense/costs [Spending Variance]

>Flexible budget expenses/costs are LESS than Static/Planned budget expenses/costs [Activity Variance]

* Unfavourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are MORE than Flexible budget expense/costs [Spending Variance]

>Flexible budget expenses/costs are MORE than Static/Planned budget expenses/costs [Activity Variance]