Supreme Catering
At the end of January, Supreme Catering prepared the following budget for the upcoming month of February estimating that they would serve 3000 people:
$\begin{array}{lr}
\text { Sales revenue per guest } &\$20\
\text { Variable costs per guest} &8\
\text { Total fixed costs } &\$5000\
\end{array}$

During February, there were 2700 guests actually served. Actual costs incurred were $27 000 for variable costs and $6500 for fixed costs. Each guest was charged $20.
-Supreme Catering's flexible budget variance for February would show a variance of:
A) $ 6900 U
B) $ 6900 F
C) $10 500 U
D) $10 500 F

Question

Supreme Catering
At the end of January, Supreme Catering prepared the following budget for the upcoming month of February estimating that they would serve 3000 people:
$\begin{array}{lr}
  \text { Sales revenue per guest } &\$20\
 \text {  Variable costs per guest} &8\
 \text { Total fixed costs } &\$5000\
\end{array}$

During February, there were 2700 guests actually served. Actual costs incurred were $27 000 for variable costs and $6500 for fixed costs. Each guest was charged $20.
-Supreme Catering's flexible budget variance for February would show a variance of:
A) $ 6900 U
B) $ 6900 F
C) $10 500 U
D) $10 500 F

Quizplus · Accepted Answer

The flexible budget variance is calculated by comparing the actual results to what the budget would have been if it had been adjusted (flexed) for the actual level of activity. For Supreme Catering, the flexible budget for 2700 guests would include sales revenue of $2700 \times \$20 = \$54,000$, variable costs of $2700 \times \$8 = \$21,600$, and fixed costs of \$5000 (since fixed costs do not change with the level of activity). The flexible budget profit would therefore be $ \$54,000 - \$21,600 - \$5,000 = \$27,400$. The actual profit was $ \$54,000 - \$27,000 - \$6,500 = \$20,500$. The variance is $ \$27,400 - \$20,500 = \$6,900$ unfavorable (U), because the actual profit is less than the flexed budget profit.

Supreme Catering at the End of January, Supreme Catering Prepared

Supreme Catering
at the End of January, Supreme Catering Prepared