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				$	4.20
Kitchen staff	$	6,310
Utilities	$	810		$	0.30
Delivery person							$	3.10
Delivery vehicle	$	830					$	1.20
Equipment depreciation	$	560
Rent	$	2,270
Miscellaneous	$	930		$	0.15

In November, the pizzeria budgeted for 2,160 pizzas at an average selling price of $19 per pizza and for 180 deliveries.

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

	Actual Results
Pizzas		2,260
Deliveries		160
Revenue	$	43,690
Pizza ingredients	$	10,810
Kitchen staff	$	6,250
Utilities	$	985
Delivery person	$	496
Delivery vehicle	$	1,026
Equipment depreciation	$	560
Rent	$	2,270
Miscellaneous	$	910

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November.

Answer 1

Flexible budget flexes itself to actual output. however fixed costs remains the same as budgeted

	Planning budget	Activity variance	Flexible budget	Spending variance	Actual results
Pizza	2160		2260		2260
Deliveries	180		160		160
Revenue ($19x)	$41,040($19*2160)	$1,900 F[$41,040-42,940]	$42,940($19*2260)	$750 F	$43,690
Expenses:
Pizza ingredients ($4.20x)	$9,072($4.20*2160)	$420 U [$9,072-$9,492]	$9,492($4.20*2260)	$1,318 U [$9,492-10,810]	$10,810
Kitchen staff	$6,310	$0 None	$6,310	$60 F [$6,310-$6,250]	$6,250
utilities	$1,458($810+$0.30*2160)	$30 U	$1,488($810+$0.3*2260)	$503 F [$1,488-985]	$985
delivery person	$558($3.10*180)	$62 F [$558-496]	$496($3.10*160)	$0	$496
delivery vehicle	$1,046[$830+$1.20*180]	$24 F [$1,046-1,022]	$1,022 ($830+$1.2*160)	$4 U	$1,026
equipment depreciation	$560	$0	$560	$0 None	$560
Rent	$2270	$0	$2270	$0 None	$2270
miscellaneous	$1,254($930+$0.15*2160)	$15 U [$1,254-1,269]	$1,269($930+$0.15*2260)	$359 F	$910
Total expense	$22,528	$379 U [$22,528-22,907]	$22,907	$400 U [$22,907-$23,307]	$23,307
Net operating income	$18,512	$1,521 F [$18,512-20,033]	$20,033	$350 F [$750 F-$400 U]	$20,383

if flexible revenue>planned revenue variance = favorable

if flexible cost>planned cost variance = unfavorable

if flexible cost< planned cost variance = favorable

if actual cost> flexible cost variance = unfavorable

if actual cost< flexible cost variance = favorable

if actual revenue> flexible revenue variance = favorable

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