The question is attached below, please provide explanations
Hmmm! is a neighbourhood coffee shop that sells the best coffee in the world. In addition to coffee, Hmmm! sells a few food items, mostly baked goods that pair well with coffee. The shop is open 24 hours. It runs three shifts, each staffed with the same number of people. The first shift begins at 6:00 a.m., the second at 2:00 pm. and the third at 10:00 p.m. At the end of each month, the owner meets with the manager to discuss how things went that month and 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 9,000 Cups of coffee sold 11,250 Food items sold 3,150 Coffee revenue 66,375 Food revenue 11,025 Coffee cost 14,400 Food cost 6,300 Labour cost 34,200 Utilities cost 12,150 Depreciation on equipment 1,500 Rent 900 At the end of February, the monthly budget meeting was held. The results for February were discouragingnet income was only $6,542. 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 pm. to 6:00 am.) 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 120 customers per shift. After much back and forth, they agreed to try closing those shifts for the month of March and re-evaluate after examining the results of the experiment. They prepared the budget based on the reduced number of shifts and the expected increase in customers per shift. At the end of March, the owner prepared the following static budget analysis: Item Budget Actual Variance Number of shifts 78 78 - Customer 9,360 8,869 491 U * Cu ps of coffee 11,700 12,206 506 F Food items 3,276 4,934 1,658 F ** Coffee Revenue 69,030 66,573 2,457 U Food Revenue 11,466 20,227 8,761 F ** Coffee cost 14,976 14,459 517 F Food cost 6,880 11,594 4,714 U ** Labour cost 29,640 29,640 - Utilities cost 10,530 10,140 390 F Depreciation on Equipment 1,500 1,500 - Rent 900 1,000 100 U * Authors Notes: For purposes of this exercise, please assume that the costs included in the budget are the only costs the firm incurs. Cups of coffee and number of food items sold are budgeted per customer. Utilities cost is budgeted per shift. Depreciation and rent are fixed. The asterisks in the final column indicate a significant variance based on a rule of thumb that anything over 5% of the budget is significant. t" Prepare a flexible budget analysis for Hmmm! for the month of March. Do not forget to include activity levels. Compute expected profit according to the original budget (before the experiment). Compute expected profit according to the March 1 budget. Compute expected profit according to the flexible budget. Compute actual profit. EJ'PP'!"
