Fixed Element per Month Variable Element per Liter Actual Total for June $71,540 $29,230 Revenue $12.00 Raw materials $4.65 $13,860 $5,600 $1,630 $2,600 $1,350 $650 Wages $1.40 $0.20 Utilities Rent Insurance Miscellaneous $2,600 $1,350 $2,590 $0.35 Rick's Hairstyling Revenue and Spending Variances For the Month Ended March 31 Revenue and Actual Flexible Spending Variances" Results Budget 1,100 Client-visits 1,100 Revenue($180.00q)... $194,200 $198,000 $3,800 U Expenses: Wages and salaries ($65,000 + $37.00q) Hairstyling supplies ($1.50q) Client gratuities ($4.10q) Electricity ($1,500 + $0.10q) Rent ($28,500) Liability insurance ($2,800) Employee health insurance ($21,300) Miscellaneous ($1,200 + $0.20q) 106,900 105,700 1,200 U 1,650 4,510 1,620 30 F 6,870 2,360 U 1,550 28,500 1,610 60 F 28,500 .... 2,800 2,800 22,600 21,300 1,420 1,300 U ..... 2,130 710 U ... . Total expense 172,970 167,490 5,480 U Net operating income $ 21,230 $ 30,510 $9,280 U The revenue variance is labeled favorable (unfavorable) when the actual revenue is greater than (less than) the flexible budget. The expense variances are labeled favorable (unfavorable) when the actual expense is less than (greater than) the flexible budget.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Flexible Budgets and Revenue and Spending Variances
Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas and actual results for the month of June:
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 $5,600 plus $1.40 per liter of gelato sold and the actual wages for June were $13,860. Via Gelato expected to sell 6,000 liters in June, but actually sold 6,200 liters.
Required:
Calculate Via Gelato revenue and spending variances for June. (Hint: Refer to Exhibit 9–7.)
Exhibit 9–7 Revenue and Spending Variances from Comparing Actual Results to the Flexible Budget
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