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Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:

	Fixed Element per Month		Variable Element per Customer Served			Actual Total for May
Revenue			$	6,100		$	223,500
Employee salaries and wages	$	68,000	$	1,500		$	126,000
Travel expenses			$	600		$	20,400
Other expenses	$	47,000				$	44,300

When preparing its planning budget the company estimated that it would serve 35 customers per month; however, during May the company actually served 40 customers.

1. What is Adger’s revenue variance, employee salaries and wages spending variance, travel expenses spending variance, and other expenses spending variance for May? (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.)

2. What amount of revenue, employee salaries and wages, travel expenses, and other expenses would be included in Adger’s planning budget for May?

3. What activity variance would Adger report in May with respect to its revenue? (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.)

4. What activity variances would Adger report with respect to each of its expenses for May? (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.)

5. What net operating income would appear in Adger’s flexible budget for May?

Answer 1

1) Variance
Revenue
Variable element per customer served	$6,100
Actual Activity	40
Amount in Flexible budget	$244,000
Employee salaries and wages
Variable element per customer served:	$1,500
Actual Activity	40
Variable portion of the amount ($1500 x 40)	$60,000
Fixed element for the month (given)	$68,000
Amount in Planned budget	$128,000
Travel Expenses
Variable element per customer served:	$600
Actual Activity	40
Amount in Flexible budget	$24,000
Amount of Other Expenses
Variable element per customer served:	$0
Actual Activity	40
Variable portion of the amount ($0 x 40)	$0
Fixed element for the month (given)	$47,000
Amount in Planned budget	$47,000
	Flexible Budget	Actual	Variance
Revenue	$244,000	$223,500	$20,500	UF
Employee salaries and wages	$128,000	$126,000	$2,000	F
Travel expenses	$24,000	$20,400	$3,600	F
Other expenses	$47,000	$44,300	$2,700	F
2)
1) What amount of revenue would be included in Adger's Planning for May
Revenue
Variable element per customer served	$6,100
Planned Activity	35
Amount in Planned budget	$213,500
2)What amount of employee salaries and wages would be included in Adger's flexible budget for May?
Employee salaries and wages
Variable element per customer served:	$1,500
Planned Activity	35
Variable portion of the amount ($1500 x 35)	$52,500
Fixed element for the month (given)	$68,000
Amount in Planned budget	$120,500
3) What amount of travel expenses would be included in Adger's flexible budget for May?
Travel Expenses
Variable element per customer served:	$600
Planned Activity	35
Amount in planning Budget ($600 x35)	$21,000
4) What amount of other expenses would be included in Adger's flexible budget for May?
Amount of Other Expenses
Variable element per customer served:	$0
Planned Activity	35
Variable portion of the amount ($0 x 35)	$0
Fixed element for the month (given)	$47,000
Amount in Planned budget	$47,000
3) & 4)
Activity Variance
	Flexible Budget	Activity Variance		Planned Budget
Revenue	$244,000	$30,500	F	$213,500
Employee salaries and wages	$128,000	$7,500	UF	$120,500
Travel expenses	$24,000	$3,000	UF	$21,000
Other expenses	$47,000	$0		$47,000
5) Net Operating Income
Revenue	$244,000
Less:
Employee salaries and wages	$128,000
Travel expenses	$24,000
Other expenses	$47,000
Net Operating income	$45,000