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[The following information applies to the questions displayed below.]

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:

When preparing its planning budget the company estimated that it would serve 35 customers per month; however, during May the company actually served 40 customers.

1. What is Adger’s revenue variance, employee salaries and wages spending variance, travel expenses spending variance, and other expenses spending variance for May? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

2. What amount of revenue, employee salaries and wages, travel expenses, and other expenses would be included in Adger’s planning budget for May?

3. What activity variance would Adger report in May with respect to its revenue? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

4. What activity variances would Adger report with respect to each of its expenses for May? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

5. What net operating income would appear in Adger’s flexible budget for May?

Fixed Element
per Month Variable Element per Customer Served Actual Total
for May Revenue $ 6,100 $ 223,500 Employee salaries and wages $ 68,000 $ 1,500 $ 126,000 Travel expenses $ 600 $ 20,400 Other expenses $ 47,000 $ 44,300

Explanation / Answer

1) Variance Revenue Variable element per customer served $6,100 Actual Activity 40 Amount in Flexible budget $244,000 Employee salaries and wages Variable element per customer served: $1,500 Actual Activity 40 Variable portion of the amount ($1500 x 40) $60,000 Fixed element for the month (given) $68,000 Amount in Planned budget $128,000 Travel Expenses Variable element per customer served: $600 Actual Activity 40 Amount in Flexible budget $24,000 Amount of Other Expenses Variable element per customer served: $0 Actual Activity 40 Variable portion of the amount ($0 x 40) $0 Fixed element for the month (given) $47,000 Amount in Planned budget $47,000 Flexible Budget Actual Variance Revenue $244,000 $223,500 $20,500 UF Employee salaries and wages $128,000 $126,000 $2,000 F Travel expenses $24,000 $20,400 $3,600 F Other expenses $47,000 $44,300 $2,700 F 2) 1) What amount of revenue would be included in Adger's Planning for May Revenue Variable element per customer served $6,100 Planned Activity 35 Amount in Planned budget $213,500 2)What amount of employee salaries and wages would be included in Adger's flexible budget for May? Employee salaries and wages Variable element per customer served: $1,500 Planned Activity 35 Variable portion of the amount ($1500 x 35) $52,500 Fixed element for the month (given) $68,000 Amount in Planned budget $120,500 3) What amount of travel expenses would be included in Adger's flexible budget for May? Travel Expenses Variable element per customer served: $600 Planned Activity 35 Amount in planning Budget ($600 x35) $21,000 4) What amount of other expenses would be included in Adger's flexible budget for May? Amount of Other Expenses Variable element per customer served: $0 Planned Activity 35 Variable portion of the amount ($0 x 35) $0 Fixed element for the month (given) $47,000 Amount in Planned budget $47,000 3) & 4) Activity Variance Flexible Budget Activity Variance Planned Budget Revenue $244,000 $30,500 F $213,500 Employee salaries and wages $128,000 $7,500 UF $120,500 Travel expenses $24,000 $3,000 UF $21,000 Other expenses $47,000 $0 $47,000 5) Net Operating Income Revenue $244,000 Less: Employee salaries and wages $128,000 Travel expenses $24,000 Other expenses $47,000 Net Operating income $45,000

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