Question

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			$	5,400		$	203,000
Employee salaries and wages	$	53,000	$	1,400		$	108,500
Travel expenses			$	750		$	27,700
Other expenses	$	32,000				$	30,800

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.

1-1. What is Adger’s travel 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.)

1-2. What is Adger’s 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.)

1-3. What amount of revenue would be included in Adger’s planning budget for May?

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

Answer 1

Answer 1-1:

Actual travel expenses = $27,700

Flexible budget for travel expenses = $750 * Actual number of customer served
Flexible budget for travel expenses = $750 * 40
Flexible budget for travel expenses = $30,000

Spending variance for travel expenses = Flexible budget for travel expenses - Actual travel expenses
Spending variance for travel expenses = $30,000 - $27,700
Spending variance for travel expenses = $2,300 Favorable

Answer 1-2:

Actual other expenses = $30,800

Flexible budget for other expenses = $32,000

Spending variance for other expenses = Flexible budget for other expenses - Actual other expenses
Spending variance for other expenses = $32,000 - $30,800
Spending variance for other expenses = $1,200 Favorable

Answer 1-3:

Planning budget for revenue = $5,400 * Budgeted number of customer served
Planning budget for revenue = $5,400 * 35
Planning budget for revenue = $189,000

Answer 2:

Planning budget for employee salaries and wages = $1,400 * Budgeted number of customer served + $53,000
Planning budget for employee salaries and wages = $1,400 * 35 + $53,000
Planning budget for employee salaries and wages = $102,000