Question

Exercise 17-25 Sales Mix and Quantity Variances (LO 17-3)

The restaurant at the Hotel Galaxy offers two choices for breakfast: an all-you-can-eat buffet and an a la carte option, where diners can order from the menu. The buffet option has a budgeted meal price of $47. The a la carte option has a budgeted average price of $36 for a meal. The restaurant manager expects that 40 percent of its diners will order the buffet option. The buffet option has a budgeted variable cost of $27 and the a la carte option averages $20 per meal in budgeted variable cost. The manager estimates that 2,100 people will order a meal in any month.

For July, the restaurant served a total of 1,900 meals, including 640 buffet options. Total revenues were $30,720 for buffet meals and $49,140 for the a la carte meals.

Required:

a. Compute the activity variance for the restaurant for July. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

b. Compute the mix and quantity variances for July. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

1. Activity Variance= Budgeted Sales - Acutual Sales

Budgeted Sales= Buffet sales + La Carte Sales

= Budgetd Buffet price* No. of buffet inner + Budgeted La Carte Price* No of La Carte Dinner

= 47*840 + 36*1260 = 39480 + 45360 = 84840

Actual Sales = Actual Buffer Sales + Actual La Carte Sales

= 30720 +49140 = 79860

Activity Variance = 84840 - 79860 = 4980 (Unfavourable as actual sales are less than budgetted sales)

2. Mix Variance: Budgeted Price *( Revised Budgeted Quantity - Actual Quantity)

Here Revised Budgeted Quantity = Budgeted Quqntity / Total Budgeted Quantity * Total Actual Quantity

For Buffet Dinner = 47 * ( 760 - 640) = 5640 (Unfavourable as actual quantity less than revised budgeted qty.)

For La Carte Dinner= 36* ( 1140- 1260 ) = 4320 (Favouable as actual quantity is more than revised budgeted qty.

Mix Variance = 5640 (U) + 4320 (F) = 1320 (U)

3. Quantity Variance = Budgeted Sales - Revised Budgeted Sales

For Buffet Dineer = 840 - 760 = 80 (Unfavorable as revised budgeted sales less than actual budgeted sales)

For La Carte Dinner = 1260 - 1260 = 0

Quantity Variance = 80 (U) + 0 = 80 (U)