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Gelato Supremo is a popular neighborhood gelato shop. The company has provided t

ID: 2470316 • Letter: G

Question

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

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 $5,000 plus $1.10 per liter of gelato sold, and the actual wages for July were $11,020. Gelato Supremo expected to sell 5,100 liters in July, but actually sold 5,000 liters.

Prepare a report showing Gelato Supremo revenue and spending variances for July. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Prepare a report showing Gelato Supremo revenue and spending variances for July. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Fixed
Element
per Month Variable
Element
per Liter Actual
Total for
July   Revenue    $ 14.10    $ 73,770       Raw materials $ 4.50    $ 24,430       Wages $ 5,000    $ 1.10    $ 11,020       Utilities $ 1,820    $ 0.10    $ 2,192       Rent $ 3,180    $ 3,180       Insurance $ 1,860    $ 1,860       Miscellaneous $ 520    $ 0.10    $ 1,138    

Explanation / Answer

1. Spending Variances :

a) Material Usage Variance = (SR*AU) - Actual Material Cost

= ( 4.50*5000) - $24,430

= $22,500 - $ 24,430 = $ 1,930 U

b) Variable Overhead spending Variance = (SR*AU)-ACtual OH

Caculation of Actual VOH rate : Wages 11,020

Utilities 2,192

Miscellaneous 1,138

Total Actual 14,350

Standard VOH (1.10+.0.10+0.10) per ltr 1.30

std. VOH = SR*AU = 1.30*5000 = $ 6,500

Actual VOH = $ 14,350

Variance = $ 7,850 U

b) Overheads spending variance :

Standard overheads :

Wages = 5000+1.10*5100 = 5000+5500 =$ 10,500

Utilities = 1820+0.10*5100= 1820+510 = $2,330

Rent = $ 3,120

Insurance = $ 1,860

Total Standard Overheads =$ 17,810

Standard quantity =$ 5,100

Standard rate = $ 3.49

Actual Overheads :

Wages =$ 11,020

Utilities =$ 2,192

Rent = $ 3,120

Insurance = $ 1,860

Total Actual Overheads $ 18,192

spending Variance = (SR*AU) - Actual Overheads = (3.49*5000) - 18,192

=$ 17,450-$ 18192 =$ 742 U

c) Revenue Variance = Actual Sales - (AU*SP)

= $ 73,770 - 5000*14.10

= $ 73,770 - $ 70,500 = $ 3,270 F

Flexible

Budget

Actual

Results

Revenue and Spending Variances for the month of July 31

Flexible

Budget

Actual

Results

Revenue and spending Varainces Revenue $ $ $ Sales 70,500 73,770 3,270 F Expenses : Raw materials 22,500 24,430 1,930 U Wages 10,500 11,020 520 U Utilities 2,320 2,192 128 F Rent 3,180 3,180 0 None Insurance 1,860 1,860 0 None Miscellaneous 1,020 1,138 118 U Total Expenses 41,380 43,820 2,440 U Net Operating Income 29,120 29,950 830 F