Shari Kay owns and operates Perfect Petals, a successful florist shop in Bloomington, Indiana. Shari estimates that
Question:
Shari Kay owns and operates Perfect Petals, a successful florist shop in Bloomington, Indiana. Shari estimates that her variable costs amount to $0.25 per sales dollar (i.e., variable costs represent 25% of revenue) and that her fixed costs amount to $6,000 per month. Shari budgets for $16,000 in revenue per month.
This past May, Shari's actual revenue was $21,000. Shari attributes part of the increase to seasonal holidays (Mother's Day, Memorial Day) and part of the increase to raising her prices. Shari figures that, taking advantage of a surge in demand, she was able to increase her prices by 5% this past month. Shari's actual total costs for May were $12,100, which included $6,300 in fixed costs.
Required:
a. What is Shari's master budget profit and actual profit for May?
b. What is Shari's total profit variance for May?
c. Decompose Shari's total profit variance for May into four numbers: (1) the sales volume variance, (2) the sales price variance, (3) the variable cost variance, and (4) the fixed cost spending variance.
Step by Step Answer:
Managerial Accounting
ISBN: 978-1118385388
2nd edition
Authors: Ramji Balakrishnan, Konduru Sivaramakrishnan, Geoff B. Sprinkle