Question

Exercise 9-16 Flexible Budgets and Revenue and Spending Variances [LO9-1, LO9-3]

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				$	19.00		$	111,530
Raw materials				$	5.35		$	33,830
Wages	$	6,300		$	2.10		$	18,900
Utilities	$	2,330		$	0.90		$	8,100
Rent	$	3,300					$	3,300
Insurance	$	2,050					$	2,050
Miscellaneous	$	720		$	1.05		$	6,900

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 $6,300 plus $2.10 per liter of gelato sold and the actual wages for June were $18,900. Via Gelato expected to sell 6,000 liters in June, but actually sold 6,200 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.)

	Via Gelato Revenue and Spending Variances For the Month Ended June 30 Revenue Expenses: Raw materials Wages Utilities Rent Insurance Miscellaneous Total expense Net operating income

Answer 1

Solution

Via Gelato
Revenues and Spending Variance
For the Month ended June
Revenue	$ 6,270.00	U
Expenses:
Raw material	$ 660.00	U
Wages	$ 420.00	F
Utilities	$ 190.00	U
Rent	$ 0.00	None
Insurance	$ 0.00	None
Miscellaneous	$ 330.00	F
Total Expenses	$ 100.00	U
Net Operating Income	$ 6,370.00	U

Working

Standard revenue and cost
	D=(A x C) +B	A	B	C
Revenue	$ 117,800	6200		$    19.00
Expenses:		6200
Raw material	$ 33,170	6200		$       5.35
Wages	$ 19,320	6200	$      6,300.00	$       2.10
Utilities	$ 7,910	6200	$      2,330.00	$       0.90
Rent	$ 3,300	6200	$      3,300.00	$           -
Insurance	$ 2,050	6200	$      2,050.00	$           -
Miscellaneous	$ 7,230	6200	$         720.00	$       1.05
Total Expenses	$ 72,980
Net Operating Income	$ 44,820