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			$	5,900		$	216,500
Employee salaries and wages	$	66,000	$	1,300		$	116,200
Travel expenses			$	580		$	19,700
Other expenses	$	45,000				$	42,500

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.

Foundational 9-6

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.)

Answer 1

Ans. 6	Revenue variance is the difference between actual revenue and flexible budgeted revenue.
	Therefore first of all, we need to calculate the revenue of flexible budget.
	Flexible budgeted revenue =   Actual customers served * Revenue per unit
	40 * $5,900
	$236,000
	Revenue variance = Flexible budgeted revenue - Actual revenue
	$236,000 - $216,500
	$19,500	Unfavorable
	*The variance is unfavorable because actual revenue is less than budgeted.