Variance Analysis Using a Flexible Budget
Harrald’s Fish House is a family-owned restaurant that specializes in Scandinavian-style seafood. Data concerning the restaurant’s monthly revenues and costs appear below (q refers to the number of meals served):
Required:
· 1. Prepare the restaurant’s planning budget for April assuming that 1,800 meals are served.
· 2. Assume that 1,700 meals were actually served in April. Prepare a flexible budget for this level of activity.
· 3. The actual results for April appear below. Prepare a flexible budget performance report for the restaurant for April.
Solution to Review Problem
· 1. The planning budget for April appears below:
· 2. The flexible budget for April appears below:
· 3. The flexible budget performance report for April appears below:
Glossary
Activity variance
The difference between a revenue or cost item in the static planning budget and the same item in the flexible budget. An activity variance is due solely to the difference between the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget. (p. 389)
Flexible budget
A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period. (p. 384)
Planning budget
A budget created at the beginning of the budgeting period that is valid only for the planned level of activity. (p. 384)