Question

Via Gelato is a popular neighborhood gelato shop. The company has provided the following data concerning its operations: Fixed Element per Month Variable Element per Liter Actual Total for June Revenue $ 16.00 $ 90,540 Raw materials $ 5.05 $ 31,630 Wages $ 6,000 $ 1.80 $ 16,900 Utilities $ 2,030 $ 0.60 $ 6,000 Rent $ 3,000 $ 3,000 Insurance $ 1,750 $ 1,750 Miscellaneous $ 690 $ 0.75 $ 5,200 While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $6,000 plus $1.80 per liter of gelato sold and the actual wages for June were $16,900. Via Gelato expected to sell 6,000 liters in June, but actually sold 6,200 liters. Required: 1. What is the amount of revenue that would be included in the flexible budget for Via Gelato in June? 2. What is the total amount of fixed expense per month in Via Gelato's flexible budget? 3. What is the variable expense per liter in Via Gelato's flexible budget for all expense lines combined? What is the total variable expense for the month in Via Gelato's flexible budget? 4. What is the Net Operating Income in Via Gelato's flexible budget? 5. What is the Via Gelato's actual Net Operating Income for the month? 6. Using your answers from steps 4 and 5, what is the overall revenue and spending variance (the revenue and spending variance for the Net Income column) for Via Gelato in June? (Input all amounts as positive values. Indicate the effect of the variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Answer 1

Flexible budget for June
	Flexible Budget
	Fixed Cost	Variable Amount per liter	Total
Revenue		$16	$99,200
Raw material		$5.05	$31,310
Wages	$6,000	$1.80	$17,160
Utilities	$2,030	$0.60	$5,750
Rent	$3,000		$3,000
Insurance	$1,750		$1,750
Miscellaneous	$690	$0.75	$5,340
Total Cost	$13,470	$8.20	$64,310
Net Operating income			$34,890
1. Amount of revenue for 6200 liters included in June flexible budget is $99200
2. Total amount of fixed expenses per month is $13,470
3. Variable expenses per liter is $8.20
Total variable expenses for flexible budget of June is $8.20 x 6200 units = $50,840
4. Net operating income in flexible budget is $34,890
5. Actual net operating income is $26,060
	Fixed Cost	Variable Amount per liter	Total
Revenue		$16	$90,540
Raw material		$5.05	$31,630
Wages	$6,000	$1.80	$16,900
Utilities	$2,030	$0.60	$6,000
Rent	$3,000		$3,000
Insurance	$1,750		$1,750
Miscellaneous	$690	$0.75	$5,200
Total costs	$13,470	$8.20	$64,480
Net Operating income			$26,060
6. Revenue and spending variance
	Flexible budget	Actual Results	Variances
Liters	6200	6200
Revenue	$99,200	90540	$8,660	U
Raw material	$31,310	31630	$320	F
Wages	$17,160	16900	$260	U
Utilities	$5,750	6000	$250	F
Rent	$3,000	3000	$0	None
Insurance	$1,750	1750	$0	None
Miscellaneous	$5,340	5200	$140	U
Total costs	$64,310	64480	$170	F
Net Operating income	$34,890	26060	$8,830	U