Question

Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas and actual results for the month of June: Fixed Element per Month Variable Element per Liter Actual Total for June Revenue $ 23.00 $ 140,540 Raw materials $ 5.75 $ 37,030 Wages $ 6,700 $ 2.50 $ 21,800 Utilities $ 2,730 $ 1.30 $ 11,600 Rent $ 3,700 $ 3,700 Insurance $ 2,450 $ 2,450 Miscellaneous $ 760 $ 1.45 $ 9,390 While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $6,700 plus $2.50 per liter of gelato sold and the actual wages for June were $21,800. Via Gelato expected to sell 6,100 liters in June, but actually sold 6,300 liters. Required: Calculate Via Gelato revenue and spending variances for June. (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

Solution:
Via Gelato
Revenue & Spending Variance
		Flexible budget	Actual result	Revenue & spending variance	Favourable/unfavorable
Revenue		144900	140540	4360	U
		(6300 litres*23)
Expenses
Raw material (6300 litres*5.75)		36225	37030	805	U
Wages (6700+6300*2.50)		22450	21800	650	F
Utilities(2730+6300*1.30)		10920	11600	680	U
Rent		3700	3700	0
Insurance		2450	2450	0
Miscellaneous [760+(1.45*6300)]		9895	9390	505	F
Total expenses		85640	85970	330	U
Net operating income		59260	54570	4690	U