Question

The Foundational 15 (Algo) [LO9-1, LO9-2, LO9-3]

[The following information applies to the questions displayed below.]

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			$	5,800		$	217,000
Employee salaries and wages	$	57,000	$	1,800		$	128,100
Travel expenses			$	950		$	35,300
Other expenses	$	36,000				$	34,400

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.

5. What net operating income would appear in Adger’s flexible budget for May?

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.)

7. What is Adger’s employee salaries and wages spending variance for May?

8. What is Adger’s travel expenses spending variance for May?

Answer 1

5
Revenue	232000	=40*5800
Less: Total variable expenses	110000	=40*(1800+950)
Less: Total fixed expenses	93000	=57000+36000
Net operating income	29000
6
Actual results	Revenue variance		Flexible budget
217000	15000	U	232000
7
Actual results	Spending variance		Flexible budget
128100	900	F	129000
8
Actual results	Spending variance		Flexible budget
35300	2700	F	38000