Question

Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,500 pounds of oysters in August. The company’s flexible budget for August appears below:

Quilcene Oysteria
Flexible Budget
For the Month Ended August 31
Actual pounds (q)		7,500
Revenue ($4.15q)	$	31,125
Expenses:
Packing supplies ($0.35q)		2,625
Oyster bed maintenance ($3,300)		3,300
Wages and salaries ($2,500 + $0.30q)		4,750
Shipping ($0.65q)		4,875
Utilities ($1,280)		1,280
Other ($400 + $0.01q)		475
Total expense		17,305
Net operating income	$	13,820

The actual results for August appear below:

Quilcene Oysteria
Income Statement
For the Month Ended August 31
Actual pounds		7,500
Revenue	$	27,400
Expenses:
Packing supplies		2,795
Oyster bed maintenance		3,160
Wages and salaries		5,160
Shipping		4,605
Utilities		1,090
Other		1,095
Total expense		17,905
Net operating income	$	9,495

Required:

Calculate the company’s revenue and spending variances for August. (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.)

	Quilcene Oysteria Revenue and Spending Variances For the Month Ended August 31 Revenue Expenses: Packing supplies Oyster bed maintenance Wages and salaries Shipping Utilities Other Total expense Net operating income

Answer 1

Answer

• Concepts

Conceptual notes:

#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'

#2: Revenue & Spending Variance = Difference between 'Actual data' and 'Flexible Budget data'

* Favourable Variance in case of Revenues occurs when:

>Actual revenues are MORE than Flexible budget revenues [Spending Variance]

* Unfavourable Variance in case of Revenues occurs when:

>Actual revenues are LESS than Flexible budget revenues [Spending Variance]

* Favourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are LESS than Flexible budget expense/costs [Spending Variance]

* Unfavourable Variance in case of Expenses/Costs occurs when:

>Actual expenses/costs are MORE than Flexible budget expense/costs [Spending Variance]

• Requirement

	Actual Result	Revenue & Spending Variance		Flexible Budget
No. of pounds	7,500			7,500
	[A]	[B = Difference between A & C]		[C = Fixed + (Var x Actual units)]
Revenues	$27,400	$3,725	U	$31,125
Expenses:
Packing supplies	$2,795	$170	U	$2,625
Oyster bed maintenance	$3,160	$140	F	$3,300
Wages & Salaries	$5,160	$410	U	$4,750
Shipping	$4,605	$270	F	$4,875
Utilities	$1,090	$190	F	$1,280
Other	$1,095	$620	U	$475
Total Expenses	$17,905	$600	U	$17,305
Net Operating Income	$9,495	$4,325	U	$13,820

--Working

	WORKING COLUMNS
No. of pounds
	Fixed part	+(	Variable part	x	Actual/Planned units	)
Revenues			$                  4.15	x	7500
Expenses:					7500
Packing supplies	$0	+(	$                  0.35	x	7500	)
Oyster bed maintenance	$3,300	+(	$                      -	x	7500	)
Wages & Salaries	$2,500	+(	$                  0.30	x	7500	)
Shipping	$0	+(	$                  0.65	x	7500	)
Utilities	$1,280	+(	$                      -	x	7500	)
Other	$400	+(	$                  0.01	x	7500	)
Total Expenses	$7,480	+(	$                  1.31	x	7500	)
Net Operating Income