Question

Given the information below, answer the question.
As a manager, you want to analyze only significant budget variances on a monthly basis. Your company recommends the criteria below to determine if the budget variances are significant.

(1) Revenues (sales)	If both $variance exceeds ±$5,000 and %variance exceeds ±4%, the variance is significant.
(2) Fixed Expenses (F)	If $variance exceeds ±$100, the variance is significant.
(3) Variable Expenses (V)	If both $variance exceeds ±$500 and %variance exceeds ±2%, the variance is significant.
Period: Nov 1-30, 2019	Budget	Actual	$ Variance	% Variance	Sig/Non-sig	Favorable /Unfavorable
Room Sales	$200,000	$196,000
Food Sales	$50,000	$65,000
Cost of Food Sold (V)	$15,000	$16,000
Labor (F)	$10,000	$9,700
Labor (V)	$15,000	$15,200
Supplies (V)	$2,500	$2,700
Franchise Fees (V)	$4,000	$4,480
Depreciation (F)	$6,000	$6,000
Insurance (F)	$3,000	$2,050
Property taxes (F)	$3,000	$3,000

Which account shows significant and unfavorable variance during this period?

A. Cost of Food Sold

B. Labor (Variable expense)

C. Food Sales

D. Labor (Fixed expense)

Answer 1

Particulars	Budget	Actual	$ Variance	% Variance	Sig / Non Sig	Fav / Unfav
Room Sales	200,000	196,000	-4,000	-2%	Non Sig	Unfavorable
Food Sales	50,000	65,000	+15,000	30%	Sig	Favorable
Cost of Food Sold	15,000	16,000	1,000	6.67%	Sig	Unfavorable
Labor (F)	10,000	9,700	-300	-3%	Sig	Favorable
Labor (V)	15,000	15,200	200	1.33%	Non Sig	Unfavorable
Supplies	2,500	2,700	200	8%	Non Sig	Unfavorable
Franchise Fee	4,000	4,480	480	12%	Non Sig	Unfavorable
Depreciation	6,000	6,000	0	0%	-	-
Insurance	3,000	2,050	-950	-31.67%	Sig	Favorable
Property Taxes	3,000	3,000	0	0%	-	-

A. Cost of Food Sold

Cost of Food Sold shows significant and unfavorable variance during the period.

Note:

$ Variance = Actual - Budget

% Variance = $ Variance / Budget * 100