Question
A shop is open 24 hours, with three shifts (same # of people per shift). Shift #1: 6:00 a.m., Shift #2: 2:00 p.m., shift #3:
A shop is open 24 hours, with three shifts (same # of people per shift). Shift #1: 6:00 a.m., Shift #2: 2:00 p.m., shift #3: 10:00 p.m. At the end of each month, the owner meets with the manager to discuss how things went that month to prepare the budget for the upcoming month. The basic budget that is used each month is as follows:
Number of shifts | 90 |
Number of customers | 18,000 |
X items sold | 22,500 |
Y items sold | 6,300 |
X revenue | 132,750 |
Y revenue | 22,050 |
X cost | 28,800 |
Y cost | 12,600 |
Labour cost | 68,400 |
Utilities cost | 24,300 |
Depreciation on equipment | 3,000 |
Rent | 1,800 |
At the end of march, meeting because -the results for march werent goodnet income was only $13,084. Much of the discussion centered around the three shifts that seemed to be contributing the least to the overall success of the firm. These are the last shift (from 10:00 p.m. to 6:00 a.m.) beginning on Sunday night through early Wednesday morning. The manager suggested that they close the shop for these three shifts. Both agreed that average customers per shift would likely increase as a result, perhaps to as much as 240 customers per shift. It was agreed to close those shifts for the month of April and re-evaluate afterwards/ They prepared the budget based on the reduced number of shifts and the expected increase in customers per shift:
At the end of April, the owner prepared the following static budget analysis:
item | budget | actual | variance |
Number of shifts | 78 | 78 | 0 |
Number of customers | 18720 | 17738 | 982 |
Cups of X sold | 23400 | 24412 | -1012 |
Y items sold | 6552 | 9868 | -3316 |
X revenue | 138060 | 133146 | 4914 |
Y revenue | 22932 | 40454 | -17522 |
X cost | 29952 | 28918 | 1034 |
Y cost | 13760 | 23188 | =9428 |
Labour cost | 59280 | 59280 | |
Utilities cost | 21060 | 20280 | 780 |
Depreciation on equipment | 3000 | 3000 | |
Rent | 1800 | 2000 | -200 |
assume that the costs included in the budget are the only costs the firm incurs. Number of X and number of Y items sold are budgeted per customer. Utilities cost is budgeted per shift. Depreciation and rent are fixed. Concerning (yes) is based on whether anything over 5% of the budget (is concerning or not).
**With detailed calculations to demonstrate your work answer the following:
- Prepare a flexible budget analysis for the company! for the month of April. Do not forget to include activity levels.
- Compute expected profit according to the original budget (before the experiment).
- Compute expected profit according to the April 1 budget.
- Compute expected profit according to the flexible budget.
- Compute actual profit.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started