'ChickPea Delight' operates fast food restaurants in the food courts of shopping malls. Its main...

Question

'ChickPea Delight' operates fast food restaurants in the food courts of shopping malls. Its main product is a serving of falafel that requires ground chick peas (direct material) and food preparation (direct labor). The April budget for ChickPea Delight's Parkside restaurant was:
Sales 24,000 servings at $4.25 each
Standard food cost of $0.50 per serving (1/4 pound @ $2.00 per pound)
Standard direct labor of $0.60 per serving (1/25th hour @ $15.00 per hour)
Fixed occupancy expenses (rent and equipment) of $7,500
Actual April performance of the Parkside restaurant was:
Sales 26,000 servings at $4.50 each
Food cost of $14,820 for 7,800 pounds
Direct labor cost of $19,240 for 1,300 hours
Fixed occupancy expenses of $7,200
In early May, the manager received the following financial performance report:
ChickPea Delight - Parkside
Performance Report - Month of April
Category    Actual    Budgeted    Variance
Revenues    $117,000    $102,000    $15,000 F
Food Cost    (14,820)    (12,000)    2,820 U
Labor Cost    (19,240)    (14,400)    4,840 U
Occupancy    (7,200)     XXXXXXXXXX,500)     XXXXXXXXXX300 F
Profit     $75,740     $68,100     $7,640 F
The above performance report is misleading!
Memo and Appendices
The memo should address the following issues about budgeting process:
Explain why 'flexible budget variances' are usually better indicators of performance than 'static budget variances.'
For the month of April, what conclusions can you draw from the materials (price and efficiency) and labor variances (labor rate and efficiency)? (Remember to reference the appendices as support for your conclusions.)
Must give recommendations of action items to address or explore. Improvements?
Analyze the direct materials usage and show price and quantity variances.
Analyze the direct labor usage and show labor rate and labor efficiencies variances.

Sheet1
    ChickPea Delight
Parkside restaurant Performance Report
Month of April
        Actual    Spending Variances    Flexible Budget    Volume Variances    Static Budget
    Number of servings    26000        26000        24000
    Number of food pounds    7800        7800        6000
    Food cost per pound    1.9        2        2
    Labor hours    1300        1300        960
    Labor rate per hour    14.8        15        15
    Revenue    $117,000.00    $6500 F    $110,500.00    $8500 F    $102,000.00
    Variable cost:
    Food cost    14820    780 F    15600    3600 U    12000
    Labor cost    19240    260 F    19500    5100 U    14400
    Fixed cost    7200    300 F    7500    0    7500
    Profit    $75,740.00    7840 F    $67,900.00    200 U    $68,100.00

memo-43rkrsfm.docx appendices-ysmcfxut.xlsx

Khushboo · Accepted Answer

Memo
From: 
To:
Subject: Analysis of budget variances and suggestion for improvement in performance.
Static budget is prepared for one level of production volume only whereas under flexible budgeting, the budget is prepared based on actual level of output and accordingly variances are calculated based on actual and budgeted performance. The flexible budget variances are better indicator of performance comparison as compared to static budget because the flexible budget respond to change in activity and provide the actual reason of variances whereas comparison of variance at different level of production provides irrelevant results. Further, the business assumptions and predictions are changing significantly at the time of preparation of budget vs actual period so flexible budget consider all these criteria and provide better variance evaluation. 
For the month of April, the budgeted sales price per unit was 4.25 per unit whereas the actual sales price is 4.50 per unit so there is favorable revenue price variance $6500 and the entity is able to charge higher price for its products.

Please write a memo.

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