Question

Via Gelato is a popular neighborhood gelato shop. The company has provided the following data concerning its operations:

Fixed Element per Month Variable Element per Liter Actual Total for June

Revenue $ 32.00(variable) $ 192,540 (total)

Raw materials $ 6.65(variable) $ 41,930 (total)

Wages $ 7,600(fixed) $ 3.40(variable) $ 28,100 (total)

Utilities $ 3,630(fixed) $ 2.20 (variable) $ 17,500 (total)

Rent $ 4,600 (fixed) $ 4,600 (total)

Insurance $ 3,350(fixed) $ 3,350 (total)

Miscellaneous $ 850(fixed) $ 2.35 (variable) $ 15,190 (total)

While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $7,600 plus $3.40 per liter of gelato sold and the actual wages for June were $28,100. Via Gelato expected to sell 6,000 liters in June, but actually sold 6,200 liters.

Required:

1. What is the amount of revenue that would be included in the flexible budget for Via Gelato in June?

2. What is the total amount of fixed expense per month in Via Gelato's flexible budget?

3. What is the variable expense per liter in Via Gelato's flexible budget for all expense lines combined? What is the total variable expense for the month in Via Gelato's flexible budget?

4. What is the Net Operating Income in Via Gelato's flexible budget?

5. What is the Via Gelato's actual Net Operating Income for the month?

6. Using your answers from steps 4 and 5, what is the overall revenue and spending variance (the revenue and spending variance for the Net Income column) for Via Gelato in June? (Input all amounts as positive values. Indicate the effect of the variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Answer 1

Flexible budget:
Units	6200
Sales	198400	6200*32
Less: Expenses:
RM	41230	6200*6.65
Wages	28680	6200*3.4 +7600
Utilities	17270	6200*2.2+3630
rent	4600
Insurance	3350
Miscel	15420	6200*2.35+850
Total Expenses	110550
NOI	87850
1. flexible budget - revenues $198400
2. flexible budget - fixed expense $(7600+3630+4600+3350+850)=$20030
3. flexible budget - variable expenses per liter = $(6.65+3.40+2.20+2.35)= $14.60
Total variable expenses = 6200*14.60=$90520
4. NOI (flexible budget) = $87850
5. Actual NOI =	81870	ie. (192540-41930-28100-17500-4600-3350-15190)
6. Revenue and spending variance = 81870 - 87850 = $5980 U