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.

Data concerning the pizzeria’s costs appear below:

	Fixed Cost per Month			Cost per Pizza			Cost per Delivery
Pizza ingredients				$	4.80
Kitchen staff	$	5,990
Utilities	$	650		$	.70
Delivery person							$	3.50
Delivery vehicle	$	670					$	1.90
Equipment depreciation	$	432
Rent	$	1,950
Miscellaneous	$	770		$	.10

    

In November, the pizzeria budgeted for 1,680 pizzas at an average selling price of $19 per pizza and for 180 deliveries.

Data concerning the pizzeria’s operations in November appear below:

  

	Actual Results
Pizzas		1,780
Deliveries		160
Revenue	$	34,410
Pizza ingredients	$	7,930
Kitchen staff	$	5,930
Utilities	$	905
Delivery person	$	560
Delivery vehicle	$	994
Equipment depreciation	$	432
Rent	$	1,950
Miscellaneous	$	814

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.)

Answer 1

Ans.	MILANO   PIZZA
	Flexible Budget Performance Report
	For the Month Ended November 30
		Actual Results	Revenue & Spending variance		Flexible budget	Volume variance		Planning Budget
	Pizzas	1,780			1,780			1,680
	Deliveries	160			160			180
	Revenue	$34,410	$590	F	$33,820	$1,900	F	$31,920
	Less: Expenses:
	Pizza ingredients	$7,930	$614	F	$8,544	$480	U	$8,064
	Kitchen staff	$5,930	$60	F	$5,990	$0	none	$5,990
	Utilities	$905	$991	F	$1,896	$70	U	$1,826
	Delivery person	$560	$0	none	$560	$70	F	$630
	Delivery vehicle	$994	$20	U	$974	$38	F	$1,012
	Equipment depreciation	$432	$0	none	$432	$0	none	$432
	Rent	$1,950	$0	none	$1,950	$0	none	$1,950
	Miscellaneous	$814	$134	F	$948	$10	U	$938
	Total expenses	$19,515	$1,779	F	$21,294	$452	U	$20,842
	Net operating income	$14,895	$2,369	F	$12,526	$1,448	F	$11,078
	*Calculations for Flexible budget & Planning budget:
		Flexible budget	Planning budget
	Pizzas	1,780	1,680
	Deliveries	160	180
	Revenue	1,780 * $19	1,680 * $19
	Less: Expenses:
	Pizza ingredients	1,780 * $4.80	1,680 * $4.80
	Kitchen staff	$5,990	$5,990
	Utilities	$650 + ($0.70 * 1,780)	$650 + ($0.70 * 1,680)
	Delivery person	$3.50 * 160	$3.50 * 160
	Delivery vehicle	$670 + ($1.90 * 160)	$670 + ($1.90 * 160)
	Equipment depreciation	$432	$432
	Rent	$1,950	$1,950
	Miscellaneous	$770 + ($0.10 * 1,780)	$770 + ($0.10 * 1,680)
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as master budget.
	Revenue & Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Increase in expenses & decrease in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses & increase in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Favorable.