Chapter 9: Flex Budgeting and Variance Analysis Part 2 Pierre Pizza is a gourmet pizza shop in Palm Springs. It offers in store dining as well as take out and free home delivery services. The owner has determined that the shop has 2 major cost drivers - the number of pizzas sold and the number of deliveries made. Data for the cost formulas appear below: Pizza ingredients Kitchen staff Utilities Delivery Rent Pizzas Deliveries Revenue Pizza ingredients Kitchen staff Utilities Delivery Fixed cost per month Rent $ $ $ $ $ $ Cost per pizza 0 174 5,220 1,450 540 2,105 1,240 17,420 In May, the restaurant budgeted for 1,200 pizzas at an average selling price of $13.50 per pizza and for 180 deliveries. Actual May results appear below: Actual Results: 4,985 5,281 1,938 1,264 Cost per delivery 2,105 $ $ 3.80 0 $ 0.2 $ 0 $ O $ 0 $ O $ 5 Net operating income $ 1,847 Required: Prepare a report showing the restaurant's revenue and spending variances for May. Don't forget to interpret your results.
Chapter 9: Flex Budgeting and Variance Analysis Part 2 Pierre Pizza is a gourmet pizza shop in Palm Springs. It offers in store dining as well as take out and free home delivery services. The owner has determined that the shop has 2 major cost drivers - the number of pizzas sold and the number of deliveries made. Data for the cost formulas appear below: Pizza ingredients Kitchen staff Utilities Delivery Rent Pizzas Deliveries Revenue Pizza ingredients Kitchen staff Utilities Delivery Fixed cost per month Rent $ $ $ $ $ $ Cost per pizza 0 174 5,220 1,450 540 2,105 1,240 17,420 In May, the restaurant budgeted for 1,200 pizzas at an average selling price of $13.50 per pizza and for 180 deliveries. Actual May results appear below: Actual Results: 4,985 5,281 1,938 1,264 Cost per delivery 2,105 $ $ 3.80 0 $ 0.2 $ 0 $ O $ 0 $ O $ 5 Net operating income $ 1,847 Required: Prepare a report showing the restaurant's revenue and spending variances for May. Don't forget to interpret your results.
Chapter1: Financial Statements And Business Decisions
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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