Adger Corporation is a service company that measures its output based on the num

Question

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 30 customers per month; however, during May the company actually served 35 customers.

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

6. What is Adger’s revenue 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.)

7. What is Adger’s employee salaries and wages 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.)

8. What is Adger’s travel 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.)

9. What is Adger’s 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.)

Fixed Element
per Month Variable Element per Customer Served Actual Total
for May Revenue $ 5,800 $ 189,500 Employee salaries and wages $ 54,000 $ 1,500 $ 105,900 Travel expenses $ 800 $ 25,600 Other expenses $ 33,000 $ 31,700

Explanation / Answer

5) Net operating income in flexible budget = (5800-1500-800)*35-54000-33000 = 35500

6) Revenue variance = (5800*35)-189500 = 13500 U

7) Employee salaries and wages spending variance = (1500*35+54000)-105900 = 600 F

8) Travel expense spending variance = (800*35)-25600 = 2400 F

9) Other expense spending variance = 33000-31700 = 1300 F

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