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			Cost per Delivery
Pizza ingredients				$	4.50
Kitchen staff	$	5,930
Utilities	$	620		$	0.40
Delivery person							$	3.20
Delivery vehicle	$	640					$	1.60
Equipment depreciation	$	408
Rent	$	1,890
Miscellaneous	$	740		$	0.20

  

In November, the pizzeria budgeted for 1,590 pizzas at an average selling price of $16 per pizza and for 230 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

  

	Actual Results
Pizzas		1,690
Deliveries		210
Revenue	$	27,600
Pizza ingredients	$	7,390
Kitchen staff	$	5,870
Utilities	$	890
Delivery person	$	672
Delivery vehicle	$	988
Equipment depreciation	$	408
Rent	$	1,890
Miscellaneous	$	796

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November.

Answer 1

Milano Pizza Flexible Budget performance report For the month ended November 30
	Actual results	Revenue and spending variances	Flexible budget	Activity variances	Planning budget
Pizzas	1690			1690			1590
Deliveries	210			210			230
Revenue	27600	560	F	27040 (1690*16)	1600	F	25440 (1590*16)
Expenses:
Pizza ingredients (4.50q1)	7390	215	F	7605 (1690*4.50)	450	U	7155 (1590*4.50)
Kitchen staff	5870	60	F	5930	0	None	5930
Utilities (620+(0.40q1))	890	406	F	1296 (620+(1690*0.40))	40	U	1256 (620+(1590*0.40))
Delivery person (3.20 q2)	672	0	none	672 (210*3.20)	64	F	736 (210*2.80)
Delivery vehicle (640+1.60q2)	988	12	U	976 (640+(210*1.60))	32	F	1008 (640+(230*1.60))
Equipment depreciation	408	0	none	408	0	none	408
Rent	1890	0	none	1890	0	none	1890
miscellaneous	796	282	F	1078 (740+(0.20*1690))	20	U	1058 (740+(0.20*1590))
Total expense	18904	951	F	19855	414	U	19441
Net operating income	8696	1511	F	7185	1186	F	5999