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			$	5,700		$	209,500
Employee salaries and wages	$	64,000	$	1,100		$	106,400
Travel expenses			$	560		$	19,000
Other expenses	$	43,000				$	40,700

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.

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

3. What amount of travel expenses would be included in Adger’s flexible budget for May?

4. What amount of other expenses would be included in Adger’s flexible budget for May?

5. What net operating income would appear in Adger’s flexible budget for May?

6. What is Adger’s revenue 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.)

7. What is Adger’s employee salaries and wages 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.)

8. 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.)

9. 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.)

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

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

12. What amount of travel expenses would be included in Adger’s planning budget for May?

13. What amount of other expenses would be included in Adger’s planning budget for May?

14. What activity variance would Adger report in May with respect to its revenue? (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.)

15. What activity variances would Adger report with respect to each of its expenses 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.)

Answer 1

Answer to Requirement 2.
Actual Customers served = 40
Employee Salaries and Wages, Flexible Budget = $64,000 + ($1,100 * 40)
Employee Salaries and Wages, Flexible Budget = $108,000

Answer to Requirement 3.
Actual Customers served = 40
Travel Expenses, Flexible Budget = $560 * 40
Travel Expenses, Flexible Budget = $22,400

Answer to Requirement 4.
Actual Customers served = 40
Other Expenses, Flexible Budget = $43,000

Answer to Requirement 5.
Revenue, Flexible Budget = $5,700 * 40
Revenue, Flexible Budget = $228,000

Total Expenses, Flexible Budget = $108,000 + $22,400 + $43,000
Total Expenses, Flexible Budget = $173,400

Net Operating Income = Revenue – Expenses
Net Operating Income, Flexible Budget = $228,000 - $173,400
Net Operating Income, Flexible Budget = $54,600

Answer to Requirement 6.
Revenue Variance = Actual Revenue – Revenue, Flexible Budget
Revenue Variance = $209,500 - $228,000
Revenue Variance = $18,500 (Unfavourable)

Answer to Requirement 7.
Employee Salaries and Wages Spending Variance = Actual Employee Salaries and Wages - Employee Salaries and Wages, Flexible Budget
Employee Salaries and Wages Spending Variance = $106,400 - $108,000
Employee Salaries and Wages Spending Variance = $1,600 (Favourable)