Question

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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			$	5,600		$	182,000
Employee salaries and wages	$	55,000	$	1,600		$	110,300
Travel expenses			$	850		$	27,200
Other expenses	$	34,000				$	32,600

When preparing its planning budget the company estimated that it would serve 30 customers per month; however, during May the company actually served 35 customers.

Required:

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.)

Answer 1

Answer-5)- Net operating income would appear in Adger’s flexible budget for May = $21250.

6)- Adger’s revenue variance for May is = $14000 Unfavorable.

7)- Adger’s employee salaries and wages spending variance for May is = $700 Favorable.

8)- Adger’s travel expenses spending variance for May is= $2550 Favorable.

Explanation-

ADGER CORPORATION
Revenue & Spending Variances
For the month ended May
Particulars		Flexible Budget	Actual Results	Variances	Remark
		$	$	$
Revenue	35 customer served*$5600 per customer	196000	182000	-14000	Unfavorable
Less:-Expenses
Employee salaries and wages	(35 customer served*$1600 per customer)+$55000	111000	110300	700	Favorable
Travel expenses	35 customer served*$850 per customer	29750	27200	2550	Favorable
Other expenses		34000	32600	1400	Favorable
Income from operations		21250	11900	-9350	Unfavorable