Pie Guys Pizzeria is owned and operated by three brothers. Data concerning the pizzeria’s monthly revenues and costs appear below (q refers to the number of pizzas served):
| Formula | |
| Revenue | $12q |
| Cost of ingredients | $3.50q |
| Rent | $2,500 |
| Utilities | $600 + $0.20q |
| Wages | $7,500 |
Part (a)
Prepare the pizzeria’s planning budget for February assuming that 1,500 pizzas are served.
Part (b)
Assume that 1,600 pizzas were served in February. Prepare a flexible budget for this level of activity.
Part (c)
Actual results for February appear below. Prepare a flexible budget performance report for the pizzeria for February.
| Revenue | $18,800 |
| Cost of ingredients | 5,200 |
| Rent | 2,500 |
| Utilities | 928 |
| Wages | 7,200 |
- Part (a) Solution (Learning Objective 1):
| Pie Guys Pizzeria
Planning Budget For the Month Ended February 28 |
|
| Budgeted pizzas served (q) | 1,500 |
| Revenue ($12q) | $18,000 |
| Expenses: | |
| Cost of ingredients ($3.50q) | 5,250 |
| Wages ($7,500) | 7,500 |
| Utilities ($600 + $0.20q) | 900 |
| Rent ($2,500) | 2,500 |
| Total expense | 16,150 |
| Net operating income | $ 1,850 |
Part (b) Solution (Learning Objective 1):
| Pie Guys Pizzeria
Flexible Budget For the Month Ended February 28 |
|
| Budgeted pizzas served (q) | 1,600 |
| Revenue ($12q) | $19,200 |
| Expenses: | |
| Cost of ingredients ($3.50q) | 5,600 |
| Wages ($7,500) | 7,500 |
| Utilities ($600 + $0.20q) | 920 |
| Rent ($2,500) | 2,500 |
| Total expense | 16,520 |
| Net operating income | $ 2,680 |
- Part (c) Solution (Learning Objectives 2, 3, and 4):
| Pie Guys Pizzeria
Flexible Budget Performance Report For the Month Ended February 28 |
|||||||
|
(1) Planning Budget |
Activity Variances (2) – (1) |
(2) Flexible Budget |
Revenue and Spending Variances (3) – (2) |
(3) Actual Results |
|||
| Budgeted pizzas served (q) |
1,500 |
1,600 |
1,600 |
||||
| Revenue ($12q) | $18,000 | $1,200 | F | $19,200 | $400 | U | $18,800 |
| Expenses: | |||||||
| Cost of ingredients ($3.50q) | 5,250 | 350 | U | 5,600 | 400 | F | 5,200 |
| Wages | 7,500 | 0 | 7,500 | 300 | F | 7,200 | |
| Utilities ($600 + $0.20q) |
900 |
20 |
U |
920 |
8 |
U |
928 |
| Rent | 2,500 | 0 | 2,500 | 0 | 2,500 | ||
| Total expense | 16,150 | 370 | U | 16,520 | 692 | F | 15,828 |
| Net operating income | $ 1,850 | $ 830 | F | $ 2,680 | $292 | F | $ 2,972 |
