6) Busha Corporation uses customers served as its measure of activity. The compa

Question

6) Busha Corporation uses customers served as its measure of activity. The company bases its budgets on the following information: Revenue should be $3.80 per customer served. Wages and salaries should be $38,800 per month plus $1.00 per customer served. Supplies should be $0.60 per customer served. Insurance should be $7,100 per month. Miscellaneous expenses should be $5,100 per month plus $0.30 per customer served.

The company reported the following actual results for January:

Customers Served: $30,000

Revenue: $115,500

Wages and Salaries: $66,900

Supplies: $15,900

Insurance: $6,800

Miscellaneous: $15,500

Required: Prepare a report showing the company's revenue and spending variances for January. Label each variance as favorable (F) or unfavorable (U).

HINT: If you think of the flexible budget as having the same formula that you used for costs when you split them between variable and fixed using the hi/lo method, it may be easier and it is exactly the same thing. As you know, for variable costs, the ‘formula’ is ‘how much per unit’ for each variable cost; and, for fixed costs, if it is a budget, the total fixed is constant and does not change unless you change relevant range; so the formula within the relevant range of any budget is Total fixed = Total fixed.

Explanation / Answer

Busha Corporation Flexible Budget & Revenue and speninf Variance-Jan Details   Formula Flexible Budget for 30000 customers served Actual result for Jan (30000customers served Revenue & Spending Variance F/U Customet Served x                            30,000                          30,000 Revenue   3.8*x                          114,000                       115,500                                 1,500 F   Less Costs: Wages & Salaries 38800 +1*x                            68,800                          66,900                                 1,900 F Supplies 0.6*x                            18,000                          15,900                                 2,100 F Insurance                 7,100                              7,100                            6,800                                     300 F Misc Expense 5100+0.30*x                            14,100                          15,500                                 1,400 U Total Cost                          108,000                       105,100                                 2,900 F Net Operating Income                              6,000                          10,400                                 4,400 F

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