Question

Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,600 pounds of oysters in August. The company’s flexible budget for August appears below:

Quilcene Oysteria
Flexible Budget
For the Month Ended August 31
Actual pounds (q)		7,600
Revenue ($4.10q)	$	31,160
Expenses:
Packing supplies ($0.35q)		2,660
Oyster bed maintenance ($3,300)		3,300
Wages and salaries ($2,200 + $0.40q)		5,240
Shipping ($0.75q)		5,700
Utilities ($1,230)		1,230
Other ($500 + $0.01q)		576
Total expense		18,706
Net operating income	$	12,454

The actual results for August appear below:

Quilcene Oysteria
Income Statement
For the Month Ended August 31
Actual pounds		7,600
Revenue	$	26,900
Expenses:
Packing supplies		2,830
Oyster bed maintenance		3,160
Wages and salaries		5,650
Shipping		5,430
Utilities		1,040
Other		1,196
Total expense		19,306
Net operating income	$	7,594

Required:

Calculate the company’s revenue and spending variances for August. (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.)

Answer 1

• Requirement 1

Revenue & Spending Variance = Difference between Flexible Budget and Actual results

	Actual Result	Revenue & Spending Variance			Flexible Budget
No. of pounds	7,600				7,600
	[A]	[B = Difference between A & C]			[C = Fixed + (Var x Actual units)]
Revenues	$26,900	$4,260	U	$31,160
Expenses:
Packing supplies	$2,830	$170	U	$2,660
Oyster bed maintenance	$3,160	$140	F	$3,300
Wages & Salaries	$5,650	$410	U	$5,240
Shipping	$5,430	$270	F	$5,700
Utilities	$1,040	$190	F	$1,230
Other	$1,196	$620	U	$576
Total Expenses	$19,306	$600	U	$18,706
Net Operating Income	$7,594	$4,860	U	$12,454

Conceptual notes:

#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'

#2: Spending Variance = Difference between 'Actual data' and 'Flexible Budget data'

#3: Activity Variance = Difference between 'Flexible Budget data' and 'Static/Planned Budget data'.

* Favourable Variance in case of Revenues occurs when:

>Actual revenues are MORE than Flexible budget revenues [Spending Variance]

>Flexible budget revenues are MORE than Static/Planned budget revenues [Activity Variance]

* Unfavourable Variance in case of Revenues occurs when:

>Actual revenues are LESS than Flexible budget revenues [Spending Variance]

>Flexible budget revenues are LESS than Static/Planned budget revenues [Activity Variance]

* Favourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are LESS than Flexible budget expense/costs [Spending Variance]

>Flexible budget expenses/costs are LESS than Static/Planned budget expenses/costs [Activity Variance]

* Unfavourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are MORE than Flexible budget expense/costs [Spending Variance]

>Flexible budget expenses/costs are MORE than Static/Planned budget expenses/costs [Activity Variance]