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

$ 4.10

Kitchen staff
$ 6,290


Utilities
$ 800
$ 0.20

Delivery person


$ 3.00
Delivery vehicle
$ 820

$ 2.20
Equipment depreciation
$ 552


Rent
$ 2,250


Miscellaneous
$ 920
$ 0.10



In November, the pizzeria budgeted for 2,130 pizzas at an average selling price of $18 per pizza and for 250 deliveries.

Data concerning the pizzeria’s actual results in November were as follows:


Actual Results
Pizzas
2,230
Deliveries
230
Revenue
$ 40,880
Pizza ingredients
$ 10,630
Kitchen staff
$ 6,230
Utilities
$ 980
Delivery person
$ 690
Delivery vehicle
$ 1,024
Equipment depreciation
$ 552
Rent
$ 2,250
Miscellaneous
$ 904


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

Explanation:

To create a flexible budget performance report for Milano Pizza for November, you need to calculate the variances for both revenue and spending (costs) variances and activity variances. Here's how you can do that:

Step 1: Start with the budgeted figures for November:

Budgeted pizzas sold: 2,130

Budgeted selling price per pizza: $18

Budgeted deliveries: 250

Step 2: Calculate the flexible budget figures based on the actual activity levels in November:

Flexible budget revenue: Actual pizzas sold x Budgeted selling price per pizza

Flexible budget cost components: Actual deliveries x Cost per delivery, and other cost components as per the cost formulas provided.

Step 3: Calculate the variances:

Revenue Variance = (Actual Revenue - Flexible Budget Revenue)

Spending Variances for each cost component = (Actual Cost - Flexible Budget Cost)

Activity Variances for each cost component = (Flexible Budget Cost - Budgeted Cost)

Now, let's calculate these variances:

Step 4: Complete the flexible budget performance report for November:

Actual Pizzas Sold: 2,230

Actual Deliveries: 230

Flexible Budget:

Flexible Budget Revenue = 2,230 (actual pizzas sold) x $18 (budgeted selling price per pizza) = $40,140

Flexible Budget Costs:

Pizza ingredients = 2,230 (actual pizzas sold) x $4.10 (cost per pizza ingredient) = $9,153

Kitchen Staff = $6,290 (fixed cost)

Utilities = 230 (actual deliveries) x $0.20 (cost per delivery) + $800 (fixed cost) = $846

Delivery Person = 230 (actual deliveries) x $3.00 (cost per delivery person) = $690

Delivery Vehicle = 230 (actual deliveries) x $2.20 (cost per delivery vehicle) + $820 (fixed cost) = $1,374

Equipment Depreciation = $552 (fixed cost)

Rent = $2,250 (fixed cost)

Miscellaneous = 230 (actual deliveries) x $0.10 (cost per miscellaneous) + $920 (fixed cost) = $943

Now, calculate the variances:

Revenue Variance = Actual Revenue - Flexible Budget Revenue

= $40,880 - $40,140 = $740 (Favorable)

Spending Variances:

Pizza ingredients Spending Variance = Actual Cost - Flexible Budget Cost

= $10,630 - $9,153 = $1,477 (Unfavorable)

Kitchen Staff Spending Variance = Actual Cost - Flexible Budget Cost

= $6,230 - $6,290 = $60 (Favorable)

Utilities Spending Variance = Actual Cost - Flexible Budget Cost

= $980 - $846 = $134 (Unfavorable)

Delivery Person Spending Variance = Actual Cost - Flexible Budget Cost

= $690 - $690 = $0 (No Effect)

Delivery Vehicle Spending Variance = Actual Cost - Flexible Budget Cost

= $1,024 - $1,374 = $350 (Unfavorable)

Equipment Depreciation Spending Variance = Actual Cost - Flexible Budget Cost

= $552 - $552 = $0 (No Effect)

Rent Spending Variance = Actual Cost - Flexible Budget Cost

= $2,250 - $2,250 = $0 (No Effect)

Miscellaneous Spending Variance = Actual Cost - Flexible Budget Cost

= $904 - $943 = $39 (Unfavorable)

Activity Variances for cost components are essentially zero since the actual and flexible budgeted activity levels match.

Flexible Budget Performance Report for November:

Revenue Variance: $740 (Favorable)

Spending Variances:

Total Spending Variance: $1,477 (Unfavorable)

Individual Spending Variances (for each cost component) are mentioned above.

Activity Variances: Essentially zero for all cost components.

This report summarizes the variances for Milano Pizza in November. The revenue variance is favorable, while there are some favorable and unfavorable spending variances for different cost components.