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				$	4.90
Kitchen staff	$	6,010
Utilities	$	660		$	0.80
Delivery person							$	2.60
Delivery vehicle	$	680					$	2.00
Equipment depreciation	$	440
Rent	$	1,970
Miscellaneous	$	780		$	0.10

  

In November, the pizzeria budgeted for 1,710 pizzas at an average selling price of $20 per pizza and for 190 deliveries.

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

  

	Actual Results
Pizzas		1,810
Deliveries		170
Revenue	$	36,800
Pizza ingredients	$	8,110
Kitchen staff	$	5,950
Utilities	$	910
Delivery person	$	442
Delivery vehicle	$	996
Equipment depreciation	$	440
Rent	$	1,970
Miscellaneous	$	820

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November. (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.	MILANO   PIZZA
	Flexible Budget Performance Report
	For the Month Ended November 30
		Actual Results	Revenue & Spending variance		Flexible budget	Volume variance		Planning Budget
	Pizzas	1,810			1,810			1,710
	Deliveries	170			170			190
	Revenue	$36,800	$600	F	$36,200	$2,000	F	$34,200
	Less: Expenses:
	Pizza ingredients	$8,110	$759	F	$8,869	$490	U	$8,379
	Kitchen staff	$5,950	$60	F	$6,010	$0	none	$6,010
	Utilities	$910	$1,198	F	$2,108	$80	U	$2,028
	Delivery person	$442	$0	none	$442	$52	F	$494
	Delivery vehicle	$996	$24	F	$1,020	$40	F	$1,060
	Equipment depreciation	$440	$0	none	$440	$0	none	$440
	Rent	$1,970	$0	none	$1,970	$0	none	$1,970
	Miscellaneous	$820	$141	F	$961	$10	U	$951
	Total expenses	$19,638	$2,182	F	$21,820	$488	U	$21,332
	Net operating income	$17,162	$2,782	F	$14,380	$1,512	F	$12,868
	*Calculations for Flexible budget & Planning budget:
			Flexible budget		Planning budget
	Pizzas		1,810		1,710
	Deliveries		170		190
	Revenue		1,810 * $20		1,710 * $20
	Less: Expenses:
	Pizza ingredients		1,810 * $4.90		1,710 * $4.90
	Kitchen staff		$6,010		$6,010
	Utilities		$660 + ($0.80 * 1,810)		$660 + ($0.80 * 1,710)
	Delivery person		$2.60 * 170		$2.60 * 190
	Delivery vehicle		$680 + ($2 * 170)		$680 + ($2 * 190)
	Equipment depreciation		$440		$440
	Rent		$1,970		$1,970
	Miscellaneous		$780 + ($0.10 * 1,810)		$780 + ($0.10 * 1,710)
	*Flexible budget is prepared on the basis of actual units.
	*Fixed expenses remain same as master budget.
	Revenue & Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Increase in expenses & decrease in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses & increase in revenue or net income from flexible budget to actual results & Planning budget to flexible budget =   Favorable.