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 $4.40 Cost per Delivery Pizza ingredients Kitchen staff Utilities $5,910 610 $ 0.30 Delivery person Delivery vehicle Equipment depreciation Rent $3.10 $1.50 630 400 $1,870 Miscellaneous 730 $ 0.15 In November, the pizzeria budgeted for 1,560 pizzas at an average selling price of $15 per pizza and for 220 deliveries. Data concerning the pizzeria's actual results in November appear below Actual Results Pizzas Deliveries 1,660 200 Revenue $ 25,450 $ 7,210 5,850 885 Pizza ingredients Kitchen staff Utilities nelivarr narenn 620

Answer 1

Milano Pizza
Revenue and Spending Variances
For the Month Ended November 30
	Actual results	Revenue and Spending Variances [Actual Results - Flexible Budget]		Flexible Budget [Refer Working note 1]
Pizzas	1660			1660
Deliveries	200			200
Revenue	$25,450	$550	F	$24,900
Expenses:
Pizza ingredients	$7,210	$94	F	$7,304
Kitchen staff	$5,850	$60	F	$5,910
Utilities	$885	$223	F	$1,108
Delivery person	$620	$0	None	$620
Delivery vehicle	$986	$56	U	$930
Equipment depreciation	$400	$0	None	$400
Rent	$1,870	$0	None	$1,870
Miscellaneous	$790	$189	F	$979
Total Expenses	$18,611	$510	F	$19,121
Net Operating Income	$6,839	$1,060	F	$5,779

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Note

1. A revenue variance is said to Favorable when actual revenue is more than the revenue as per the flexible budget

2. A revenue variance is said to Unfavorable when actual revenue is less than the revenue as per the flexible budget

3. An expense variance is said to Favorable when the actual expense is less than the expense as per the flexible budget

4. An expense variance is said to Unfavorable when the actual expense is more than the expense as per the flexible budget

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Working note 1 - Flexible budget
Revenue                                      [Actual sales x Budgeted Selling price = 1,660 Pizza's x $15 per pizza]	$24,900
Expenses:
Pizza ingredients                       [Variable cost = 1,660 pizza's x $4.40 per pizza]	$7,304
Kitchen staff                              [Fixed cost]	$5,910
Utilities                                     [Fixed cost + Variable cost = [$610 + (1,660 Pizza's x $0.30 per pizza)]	$1,108
Delivery person                         [Variable cost = 200 deliveries x $3.10 per delivery)]	$620
Delivery vehicle                         [Fixed cost + Variable cost = [$630 + (200 deliveries x $1.50 per delivery)]	$930
Equipment depreciation              [Fixed cost]	$400
Rent                                            [Fixed cost]	$1,870
Miscellaneous                            [Fixed cost + Variable cost = [$730 + (1,660 Pizza's x $0.15 per pizza)]	$979
Total expenses	$19,121
Net Operating Income                [Revenue - Total Expenses = $24,900 - $19,121]	$5,779

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