I need help understanding flexible variance in response to a price variance and a quantity variance
State Street Pub-State Street Pub, a large pub located near State College, serves as a gathering place for the university's more social scholars. Proprietor Bill Branch sells beer on draft and all brands of bottled beer. Bill decided to sell hamburgers during selected hours. His reasons were twofold: first, burgers would attract daytime customers, and second, he competes with other local bars which provide more extensive menus. Bill decided to sell each hamburger plate for $4.50. The incremental monthly cost analysis for the addition of hamburgers is as follows (information continues on next page): Variable costs per hamburger Food costs: rolls, ground beef, tomatoes, cheese, lettuce French fries, condiments Supplies: paper plates, napkins, etc. $1.90 $0.20 Fixed costs per month Wages of part-time cooks Equipment lease payments Other: electricity, insurance, etc. $1,200 $400 $200 At the end of the 1st quarter, Bill evaluates his decision to offer hamburgers at the State Street Pub. Bill is thrilled to find that hamburger sales are higher than he anticipated. He sold 7,500 hamburger plates in the 3-month period and the response from patrons has been excellent. However, he is disappointed to see that his expenses are higher than expected and profit is less than he hoped. plates in the 3-month period and the response from patrons has been excellent. However, he is disappointed to see that his expenses are higher than expected and profit is less than he hoped. (Question continue on the next page) Actual Results 1st Quarter Sales Food Supplies Wages Leases Other Profit $33,750 19,000 1,600 3,600 1,200 800 $ 7,550 Flex Budget for 7,500 hamburgers Actual for 7,500 hamburgers Ground Beef Buns Cheese Tomatoes Lettuce Condiments French Fries 2,500lb @ $3.50lb 7,500 @.20 per bun 375lb @ $4.00 lb. 500lb @ $2.00 lb. 200 lb. @ $1.00 lb. 200 jars @ $2.00 1,500 lb. @.60 lb. $8,750 1,500 1,500 1,000 200 400 900 3,000 @ $4.00 8,000 @.20 per bun 450lb @ $3.50 lb. 500lb @ $2.00 lb. 200 lb. @ $1.00 lb. 250 jars @ $2.50 2,000 lb. @ 1.00 lb. $12,000 1,600 1,575 1,000 200 625 2,000 Actual Results Flex. Variance Flexible Budget Volume Variance Static Budget 7500 33750 7500 33750 5400 24300 No variance 9450 F 19000 14250 4750 U 100 U 3990 U 420 U 10260 1080 1600 1500 # hamburger plates Revenue Variable Costs Food Supplies Contribution Margin Fixed Costs Wages Leases Other INCOME 13150 -4850 U 18000 5040 F 12960 3600 1200 800 7550 No variance No variance 200 U -5050 U 3600 1200 600 12600 No variance No variance No variance 5040 F 3600 1200 600 7560 2. Use the information available and prepare an analysis that shows the price and the usage variances for ground beef, buns, and cheese (the others have been done for you). This means explaining how much of the flexible variance is due to a price variance and how much is due to a usage (quantity) variance. Flexible Quantity Variance Price Variance Variance Ground beef Buns Cheese Tomatoes 0 0 0 Lettuce 0 0 0 Condiments 125 U 100 U 225 French Fries 800 U 300 U 1,100 $2,200 $2,550 $4,750
