Managerial Accounting

Project 5 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 Penns 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. PBWs planning budget and actual results for 2016 are presented in the PBW.xlxs file. PBWs 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- QUESTIONS

Instructions: Please embed your answers inside the document after each question. If you are unsure about something, feel free to email me for guidance.

1. PBW was able to track the actual amount, in ounces, of each beverage used. Based on the standard amounts provided above, and the actual amounts provided below, calculate the price and volume variance of each type of beverage that PBW serve

Beverage	Actual Ounces Used
Domestic Beer	134,710
Premium Beer	76,485
Wine	47,477
Mixed Drinks and Liquor	16,109

2 Based on the material variances that you found , provide some advice to PBW on how to reduce each unfavorable variance and (possibly) take advantage of favorable variance.

Master Budget MB Variance Vol. Variance Flexible Budget FB Variance Price/Cost $ $ F $ F $ U Qty 7500.00 5000.00 6500.00 6000.00 Revenue: Domestic Beer Premium Beer Wine Mixed Drinks and Liqour Total Revenue U U Total 45,000.00 40,000.00 52,000.00 54,000.00 6.00 8.00 8.00 9.00 $ $ F $ $ $ Actual Results Qty Total $ 8,330.00 $ 46,980.00 $ 4,725.00 $ 37,800.00 $ 6,800.00 $ 54,400.00 $ 6,150.00 $ 55,350.00 $ $ $ $ $191,000.00 $ 1,980.00 2,200.00 2,400.00 1,350.00 3,530.00 AAA 4.980.00 2,200.00 2,400.00 1,350.00 6,530.00 F $ $ $ $ F 49,980.00 $ 3.000.00 37,800.00 $ 54,400.00 $ 55,350.00 $ 197,530.00 $ 197,530.00 $ 3,000.00 $ $ $ $ $ F F F F U F F $194,530.00 U U F U F. U 830.00 412.50 600.00 375.00 300.00 U $ $ $ $ $ U U U U F 7500.00 $ 5000.00 $ 6500.00 $ 6000.00 $ 2,025 hours $ 5 months $ 5 months $ fixed fixed 5 months $ fixed 1.00 $ 1.50 $ 2.00 $ 2.50 $ 12.00 $ 1,200.00 $ 6,500.00 $ $ $ 600.00 $ $ $ $ $ $ $ $ $ $ Expenses: Domestic Beer Premium Beer Wine Mixed Drinks and Liqour Labor Equipment Rental Rent to Harbor Park Temporary Liqour License Temporary Business License Insurance Misc. Expenses Total Expenses Operating Profit 7,500.00 7,500.00 13,000.00 15,000.00 24,300.00 6,000.00 32,500.00 12,500.00 5,000.00 3,000.00 13,000.00 F F F U U $ 330.00 $ 387.50 $ 2,430.00 $ 3,525.00 $ 3,080.00 $ 755.00 $ 675.00 $ 2,500.00 $ 175.00 $ 250.00 $ 535.00 $139,300.00 $ 6,562.50 $ 51,700.00 $ (3,032.50) $ 8,330.00 $ $ 4,725.00 $ $ 6,800.00 $ $ 6,150.00 $ 2,000 hours $ 5 months $ 5 months $ fixed $ fixed $ 5 months $ fixed $ $ $ $ U 8,330.00 $ 500.00 7,087.50 $ 800.00 13,600.00 $ 1,830.00 15,375.00 $ 3,150.00 24,000.00 $ 2,780.00 6,000.00 $ 755.00 32,500.00 $ 675.00 12,500.00 $ 2,500.00 5,000.00 $ 175.00 3,000.00 $ 250.00 13,000.00 $ 535.00 140,392.50 $140,392.50 $ 5,470.00 57,137.50 $ 57,137.50 $ 8,470.00 7,830.00 7,887.50 15,430.00 18,525.00 21,220.00 6,755.00 33,175.00 15,000.00 4,825.00 2,750.00 12,465.00 F F U U U F $ F $ F. F $ $ F F $ F F U F $ $ U U AA 1,092.50 5,437.50 $145,862.50 $ 48,667.50 U F $ U Standard Q Standard Price per serving Standard Cost per ounce Pr. Variance Vol. Variance Actual ounces used ounces 16.00 16.00 5.00 Domestic Beer Premium Beer Wine Mixed Drinks and Liqour $ $ $ $ $ 1.00 1.50 2.00 2.50 0.06 0.09 0.40 1.25 134,710 76,485 47,477 16,109 $ $ 2.00 $ Master Budget MB Variance Vol. Variance Flexible Budget FB Variance Price/Cost $ $ F $ F $ U Qty 7500.00 5000.00 6500.00 6000.00 Revenue: Domestic Beer Premium Beer Wine Mixed Drinks and Liqour Total Revenue U U Total 45,000.00 40,000.00 52,000.00 54,000.00 6.00 8.00 8.00 9.00 $ $ F $ $ $ Actual Results Qty Total $ 8,330.00 $ 46,980.00 $ 4,725.00 $ 37,800.00 $ 6,800.00 $ 54,400.00 $ 6,150.00 $ 55,350.00 $ $ $ $ $191,000.00 $ 1,980.00 2,200.00 2,400.00 1,350.00 3,530.00 AAA 4.980.00 2,200.00 2,400.00 1,350.00 6,530.00 F $ $ $ $ F 49,980.00 $ 3.000.00 37,800.00 $ 54,400.00 $ 55,350.00 $ 197,530.00 $ 197,530.00 $ 3,000.00 $ $ $ $ $ F F F F U F F $194,530.00 U U F U F. U 830.00 412.50 600.00 375.00 300.00 U $ $ $ $ $ U U U U F 7500.00 $ 5000.00 $ 6500.00 $ 6000.00 $ 2,025 hours $ 5 months $ 5 months $ fixed fixed 5 months $ fixed 1.00 $ 1.50 $ 2.00 $ 2.50 $ 12.00 $ 1,200.00 $ 6,500.00 $ $ $ 600.00 $ $ $ $ $ $ $ $ $ $ Expenses: Domestic Beer Premium Beer Wine Mixed Drinks and Liqour Labor Equipment Rental Rent to Harbor Park Temporary Liqour License Temporary Business License Insurance Misc. Expenses Total Expenses Operating Profit 7,500.00 7,500.00 13,000.00 15,000.00 24,300.00 6,000.00 32,500.00 12,500.00 5,000.00 3,000.00 13,000.00 F F F U U $ 330.00 $ 387.50 $ 2,430.00 $ 3,525.00 $ 3,080.00 $ 755.00 $ 675.00 $ 2,500.00 $ 175.00 $ 250.00 $ 535.00 $139,300.00 $ 6,562.50 $ 51,700.00 $ (3,032.50) $ 8,330.00 $ $ 4,725.00 $ $ 6,800.00 $ $ 6,150.00 $ 2,000 hours $ 5 months $ 5 months $ fixed $ fixed $ 5 months $ fixed $ $ $ $ U 8,330.00 $ 500.00 7,087.50 $ 800.00 13,600.00 $ 1,830.00 15,375.00 $ 3,150.00 24,000.00 $ 2,780.00 6,000.00 $ 755.00 32,500.00 $ 675.00 12,500.00 $ 2,500.00 5,000.00 $ 175.00 3,000.00 $ 250.00 13,000.00 $ 535.00 140,392.50 $140,392.50 $ 5,470.00 57,137.50 $ 57,137.50 $ 8,470.00 7,830.00 7,887.50 15,430.00 18,525.00 21,220.00 6,755.00 33,175.00 15,000.00 4,825.00 2,750.00 12,465.00 F F U U U F $ F $ F. F $ $ F F $ F F U F $ $ U U AA 1,092.50 5,437.50 $145,862.50 $ 48,667.50 U F $ U Standard Q Standard Price per serving Standard Cost per ounce Pr. Variance Vol. Variance Actual ounces used ounces 16.00 16.00 5.00 Domestic Beer Premium Beer Wine Mixed Drinks and Liqour $ $ $ $ $ 1.00 1.50 2.00 2.50 0.06 0.09 0.40 1.25 134,710 76,485 47,477 16,109 $ $ 2.00 $