Milano Pizza is a small neighborhood pizzeria that has a small area for in-store
ID: 2461848 • Letter: M
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. Data concerning the pizzeria’s costs appear below:
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. Data concerning the pizzeria’s costs appear below:
Required. 1. Compute the revenue and spending 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.) Milano Pizza Revenue and Spending Variances For the Month Ended November 30 Actual Results Revenue and Spending Variances Flexible Budget Revenue 27,730 Expenses: Pizza ingredients Kitchen staff Utilities Delivery person Delivery vehicle Equipment depreciation Rent Miscellaneous 9,730 6,130 955 630 1,014 512 2,150 874 21,995 5,735 Total expense Net operating incomeExplanation / Answer
Revenue variance = actual revenue - flexible budgeted revenue. It will be "F" if actual > budgeted and "U" otherwise.
Spending variance = actual expense - flexible budgeted expense. It will be "F" if actual expenses<budgeted expenses and "U" otherwise.
Also flexible budget has been prepared using actual figures of 2080 pizzas and 180 deliveries.
So first, i will prepare flexible budget. Flexible budget will use actual quantities of pizza sold and deliveries done and the budgeted rates to calculate the budget amount.
Formuals for flexible budget calculation is shown in the below table:
Revenue variance = $690 (F)
Total spending variance = $1,623 (F)
Variance in net income = 690+1623 = $2,313 (F)
Revenue/cost formulas for flexible budget Actual results Flexible budget Variances Number of pizzas = p 2,080 2,080 Number of deliveries = d 180 180 Revenue 2080 pizzas*$13 27,730 27,040 690 F Expenses Pizza ingredients 2080 pizzas*$4.7 9,730 9,776 46 F Kitchen staff $6190 fixed 6,130 6,190 60 F Utilities 750+2080*$0.70 955 2,206 1,251 F Delivery person 180 deliveries*3.5 630 630 0 None Delivery vehicle 770+180 deliveries*1.7 1,014 1,076 62 F Equipment depreciation $512 fixed 512 512 0 None Rent $2150 fixed 2,150 2,150 0 None Misc. 870+2080 pizzas*0.10 874 1,078 204 F Total expenses 21,995 23,618 1,623 F Net operating income 5,735 3,422 2,313 F