Via Gelato is a popular neighborhood gelato shop. The company has provided the f

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 $ 16.00 $ 90,540 Raw materials $ 5.05 $ 31,630 Wages $ 6,000 $ 1.80 $ 16,900 Utilities $ 2,030 $ 0.60 $ 6,000 Rent $ 3,000 $ 3,000 Insurance $ 1,750 $ 1,750 Miscellaneous $ 690 $ 0.75 $ 5,200 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 $6,000 plus $1.80 per liter of gelato sold and the actual wages for June were $16,900. 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).)

Explanation / Answer

Flexible budget for June Flexible Budget Fixed Cost Variable Amount per liter Total Revenue $16 $99,200 Raw material $5.05 $31,310 Wages $6,000 $1.80 $17,160 Utilities $2,030 $0.60 $5,750 Rent $3,000 $3,000 Insurance $1,750 $1,750 Miscellaneous $690 $0.75 $5,340 Total Cost $13,470 $8.20 $64,310 Net Operating income $34,890 1. Amount of revenue for 6200 liters included in June flexible budget is $99200 2. Total amount of fixed expenses per month is $13,470 3. Variable expenses per liter is $8.20 Total variable expenses for flexible budget of June is $8.20 x 6200 units = $50,840 4. Net operating income in flexible budget is $34,890 5. Actual net operating income is $26,060 Fixed Cost Variable Amount per liter Total Revenue $16 $90,540 Raw material $5.05 $31,630 Wages $6,000 $1.80 $16,900 Utilities $2,030 $0.60 $6,000 Rent $3,000 $3,000 Insurance $1,750 $1,750 Miscellaneous $690 $0.75 $5,200 Total costs $13,470 $8.20 $64,480 Net Operating income $26,060 6. Revenue and spending variance Flexible budget Actual Results Variances Liters 6200 6200 Revenue $99,200 90540 $8,660 U Raw material $31,310 31630 $320 F Wages $17,160 16900 $260 U Utilities $5,750 6000 $250 F Rent $3,000 3000 $0 None Insurance $1,750 1750 $0 None Miscellaneous $5,340 5200 $140 U Total costs $64,310 64480 $170 F Net Operating income $34,890 26060 $8,830 U

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