Southside Pizzeria wants to improve its ability to manage the ingredient costs a

Question

Southside Pizzeria wants to improve its ability to manage the ingredient costs associated with making and selling its pizzas. For the month of June, the company plans to make 1,000 pizzas. It has created a planning budget that includes a cost formula for mozzarella cheese of $2.40 per pizza. At the end of June, Southside actually sold 1,100 pizzas and the actual cost of the cheese that it used during the month was $2,632.

Required:

1. What is the mozzarella cheese activity variance for June?

2. What is the mozzarella cheese spending variance for June?

3. Assume that the company establishes a price standard of $0.30 per ounce for mozzarella cheese and a quantity standard of eight ounces of cheese per pizza. Also, assume that Southside actually used 9,400 ounces of cheese during the month to make 1,100 pizzas.

a. What is the materials price variance for mozzarella cheese for June?

b. What is the materials quantity variance for mozzarella cheese for June?

c. What is the materials spending variance for mozzarella cheese for June?

Explanation / Answer

Solution:

Part 1 - mozzarella cheese activity variance for June

Activity Variance is the difference between planned budget and flexible bduget at standard cost.

Activity Variance = Std Price (planned quantity – flexible budget quantity)

= $2.40 (1000 – 1100)

= $240 Unfavorable

Unfavorable because flexible budget cost is higher than planned budget. Flexible budget is prepared by taking actual activity level achieved by the company but at standard cost.

Part 2 -- - mozzarella cheese spending variance for June

Spending Variance is the difference between actual result and flexible budget.

Spending Variance = Actual Result $2,632 – Flexible Budget Result 1100*$2.40

= $2,632 – 2640

= $8 Favorable

Favorable because actual result cost is less than flexible result.

Part 3(a) – Material Price Variance = Actual Quantity (Actual Price – Standard Price)

= AQ*AP – AQ*SP

= $2,632 – (9400*$0.30)

= 2632 - 2820

= $188 Favorable

Part 3(b) –

Material Quantity Variance = Std Price (Actual Quantity Used – Std Quantity for actual production)

= $0.30 (9400 – 1100pizzas x 8 ounce per pizza)

= 0.30 (9400 – 8800)

= $180 Unfavorable

Part 3(c ) --- material spending variance = Material Price Variance $188 F + Material Quantity Variance $180U

= $8 Favorable

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