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			$	5,400		$	203,000
Employee salaries and wages	$	53,000	$	1,400		$	108,500
Travel expenses			$	750		$	27,700
Other expenses	$	32,000				$	30,800

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.

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

2-1. What net operating income would appear in Adger’s flexible budget for May?

2-2. 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.)

3. 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.)

Answer 1

Ans.	ADGER CORPORATION
	Flexible Budget Performance Report
	For the Month Ended MAY 31
		Actual Results	Spending variance		Flexible Budget	Activity variance		Planning Budget
	Customers	40			40			35
	Revenue	$203,000	$13,000	U	$216,000	$27,000	F	$189,000
	Expenses:
	Employee salaries and wages	$108,500	$500	F	$109,000	$7,000	U	$102,000
	Travel expenses	$27,700	$2,300	F	$30,000	$3,750	U	$26,250
	Other expenses	$30,800	$1,200	F	$32,000	$0	none	$32,000
	Total expenses	$167,000	$4,000	F	$171,000	$10,750	U	$160,250
	Net operating income	$36,000	$9,000	U	$45,000	$16,250	F	$28,750
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as planning budget.
	*Calculation of Flexible & Planning budget:
		Flexible Budget	Planning Budget
	Customers	40	35
	Revenue	$5,400 * 40	$5,400 * 35
	Expenses:
	Employee salaries and wages	$53,000 + ($1,400 * 40)	$53,000 + ($1,400 * 35)
	Travel expenses	$750 * 40	$750 * 35
	Other expenses	$32,000	$32,000
	*Increase in expenses from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses from flexible budget to actual results & Planning budget to flexible budget =   Favorable.
	Revenue & Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Increase in revenue or net operating income and decrease in expenses from flexible budget to actual results =   Favorable.
	*Decrease in revenue or net operating income and increase in expenses from flexible budget to actual results =   Unfavorable.
Ans. 1	Other expenses	$32,000
Ans. 2-1	Net operating income	$45,000
Ans. 2-2	Revenue variance	$13,000   unfavorable
Ans. 3	Employee salaries and wages spending variance   =   $500 favorable