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				$	4.60
Kitchen staff	$	6,170
Utilities	$	740		$	0.60
Delivery person							$	3.40
Delivery vehicle	$	760					$	1.60
Equipment depreciation	$	504
Rent	$	2,130
Miscellaneous	$	860		$	0.20

  

In November, the pizzeria budgeted for 1,950 pizzas at an average selling price of $20 per pizza and for 190 deliveries.

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

  

	Actual Results
Pizzas		2,050
Deliveries		170
Revenue	$	41,680
Pizza ingredients	$	9,550
Kitchen staff	$	6,110
Utilities	$	950
Delivery person	$	578
Delivery vehicle	$	1,012
Equipment depreciation	$	504
Rent	$	2,130
Miscellaneous	$	868

Required:

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.)

	Milano Pizza Flexible Budget Performance Report For the Month Ended November 30 Actual Results Flexible Budget Planning Budget Pizzas 2,050 Deliveries 170 Revenue $41,680 Expenses: Pizza ingredients 9,550 Kitchen staff 6,110 Utilities 950 Delivery person 578 Delivery vehicle 1,012 Equipment depreciation 504 Rent 2,130 Miscellaneous 868 Total expense 21,702 Net operating income $19,978

Answer 1

Ans.	Milano Pizza
	Flexible Budget Perfomance Report
	For the Month Ended November 30
		Actual	Rev. & spend. variance		Flexible	Activity variance		Planning
		Results			Budget			Budget
	Pizzas	2050			2050			1950
	Deliveries	170			170			190
	Revenue	41680	2720	U	44400	1600	F	42800
	Expenses:
	Pizza ingredients	9550	120	U	9430	460	U	8970
	Kitchen staff	6110	60	F	6170	0	no effect	6170
	Utilities	950	1020	F	1970	60	U	1910
	Delivery person	578	0	no effect	578	68	F	646
	Delivery vehicle	1012	20	F	1032	32	F	1064
	Equipment depreciation	504	0	no effect	504	0	no effect	504
	Rent	2130	0	no effect	2130	0	no effect	2130
	Miscellenous	868	402	F	1270	20	U	1250
	Total expenses	21702	1382	F	23084	440	U	22644
	Net operating income	19978	1338	U	21316	1160	F	20156
	*Calculation of flexible & Planning budget:
		Flexible	Planning
		Budget	Budget
	Pizzas	2050	1950
	Deliveries	170	190
	Revenue	(2050+170)*20	(1950+190)*20
	Expenses:
	Pizza ingredients	2050*4.60	1950*4.60
	Kitchen staff	6170	6170
	Utilities	740+(2050*0.60)	740+(1950*0.60)
	Delivery person	3.40*170	3.40*190
	Delivery vehicle	760+(1.60*170)	760+(1.60*190)
	Equipment depreciation	504	504
	Rent	2130	2130
	Miscellenous	860+(2050*0.20)	860+(1950*0.20)
	*Revenue & spending variance = Actual results - Flexible budget
	*Activity variance = Flexible budget - Planning budget
	Increase in Revenue & Net operating income from Planning to Flexible & Flexible to Actual = Favorable.
	Decrease in Revenue & Net operating income from Planning to Flexible & Flexible to Actual = Unfavorable.
	Decrease in Expenses from Planning to Flexible & Flexible to Actual = Favorable.
	Increase in Expenses from Planning to Flexible & Flexible to Actual = Unfavorable.
	*Flexible budget is prepared on the basis of Actual units.