Cryan Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its budgets on two measures of activity (i.e., cost drivers), namely guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following data in its budgeting: Fixed element per month Variable element per guest Variable element per jeep Revenue $ 0 $ 157 $ 0 Tour guide wages $ 0 $ 0 $ 167 Vehicle expenses $ 5,000 $ 9 $ 64 Administrative expenses $ 1,500 $ 8 $ 0 In May, the company budgeted for 467 guests and 172 jeeps. The company's income statement showing the actual results for the month appears below: Cryan Jeep Tours Income Statement For the Month Ended May 31 Actual guests 482 Actual jeeps 167 Revenue $ 65,854 Expenses: Tour guide wages 28,357 Vehicle expenses 17,640 Administrative expenses 4,888 Total expense 50,885 Net operating income $ 14,969
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.
Cryan Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its budgets on two measures of activity (i.e., cost drivers), namely guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following data in its budgeting:
| Fixed element per month |
Variable element per guest |
Variable element per jeep | |||||||
| Revenue | $ | 0 | $ | 157 | $ | 0 | |||
| Tour guide wages | $ | 0 | $ | 0 | $ | 167 | |||
| Vehicle expenses | $ | 5,000 | $ | 9 | $ | 64 | |||
| Administrative expenses | $ | 1,500 | $ | 8 | $ | 0 | |||
In May, the company budgeted for 467 guests and 172 jeeps. The company's income statement showing the actual results for the month appears below:
| Cryan Jeep Tours | ||
| Income Statement | ||
| For the Month Ended May 31 | ||
| Actual guests | 482 | |
| Actual jeeps | 167 | |
| Revenue | $ | 65,854 |
| Expenses: | ||
| Tour guide wages | 28,357 | |
| Vehicle expenses | 17,640 | |
| Administrative expenses | 4,888 | |
| Total expense | 50,885 | |
| Net operating income | $ | 14,969 |
Required:
Prepare a report showing the company's revenue and spending variances for May. Label each variance as favorable (F) or unfavorable (U). (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.)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
