Managerial Accounting

Flexible Budgets and Variance Analysis

Philly Bar Works (PBW) is a catering company located in Philadelphia. Every year from May through September, they operate a beer garden at Spruce Street Harbor Park near Penn's Landing. PBW pays for all expenses of operating the beer garden as well as rent to the Harbor Park. Their operating expenses include equipment rental, temporary liquor and business licenses, and insurance. They also have a number of small miscellaneous expenses that are typically not classified and are thought to be immaterial as individual expenses.

PBW offers four types of alcoholic beverages: domestic beer, premium beer, wine, and mixed drinks and liquor. PBW's planning budget and actual results for 2016 are presented in the PBW.xlxs file. PBW's planning budget includes estimated prices and volumes (qty), while the actuals provide actual volumes. Definitions of selected revenue and expense items are listed below. Items not listed are thought to be self-explanatory.

Additional Definitions

Domestic Beer: 16-ounce serving of domestic beer. The list of domestic beers is stable and includes a regular and light version of a single domestic brand.

Premium Beer: 16-ounce serving of premium beer. Beers are chosen from a rotating list, and while cost for the types of beer may vary, the estimated average cost per serving is estimated to be $1.50.

Wine: 5-ounce serving of house wine chosen by PBW. The list includes two red and two white varietals. Cost for the types of wine may vary, but average costs are expected to be $2 per serving.

Mixed Drinks and Liquor: 2-ounce serving of liquor that can either be served on its own, over ice, or combined with a mixer. Types of liquor served include one brand each of whiskey, Scotch whiskey, vodka, rum, tequila, and gin. Regardless of whether the customer orders a mixed drink or liquor by itself, the average cost of each serving is estimated to be about $2.5.

Labor: hourly employees hired to tend the bar. The beer garden is opened from 5 to 9PM on Monday-Friday and noon to 10PM on Saturday and Sunday. 2,025 hours are estimated to be needed at an average wage of $12 per hour. The estimated working hours includes time to set up and close down the beer garden, and is based on the assumption that an average of two people will work the beer garden at any given time.

Equipment Rental: an expense paid monthly, and consisting primarily of cost associated with renting tap and refrigeration systems.

Assignment-