Question

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:
Fixed Element Variable Element Actual Total
per Month per Customer Served for May
Revenue $5,000 $160,000
Employee salaries and wages $50,000 $1,100 $88,000
Travel expenses $600 $19,000
Other expenses $36,000 $34,500
When preparing its planning budget, the company estimated that it would serve 30 customers per month; however, during May the company actually served 35 customers.
Required:
1. What amount of revenue would be included in Adger's flexible budget for May?
2. What amount of employee salaries and wages would be included in Adger's flexible budget for May?
3. What amount of travel expenses would be included in Adger's flexible budget for May?
4. What amount of other expenses would be included in Adger's flexible budget for May?
5. What net operating income would appear in Adger's flexible budget for May?

Answer 1

Answer:

1. Total Revenue in May $ 175,000

2. Total Salaries & wages For May  $ 88500

3. Total Travel Expenses for May $21,000

4. Other Expense  $ 36,000

5.  Operating Income $ 65,500

Explanation:

Given

Adger Corporation

                     Fixed Element        Variable Element           Actual Total

                      per Month                per Customer            Served for May

Revenue                                            $5,000                        $160,000

Employee Salaries

& wages           $50,000                   $1,100                           $88,000

Travel expenses                                 $600                           $19,000

Other expenses $36,000                                                      $34,500

There were 35 customers.

Revenue = $5000 per customer

We can easily calculate as we have been given the number of  customers and the variable element of expense per customer.

1. Total Revenue in May = 5000 * 35= $ 175,000

Variable Salaries & wages = $ 1100 per customer

Total Variable Salaries & wages = $ 1100 *35= $ 38500

2. Total Salaries & wages For May = Variable + Fixed

                                                     = $ 38500 + $50,000= $ 88500

Travel expenses = $600per customer

3. Total Travel Expenses for May = $ 600 *35=   $21,000

4. Other Expense = Fixed Expenses = $ 36,000 ( there are no variable expenses)

5.  Operating Income= Revenue - Employee Salaries - Travel Expenses

                            = $ 175,000- $ 88500 - $ 21,000= $ 65,500

Other expenses are included in the net income statement not operating income statement.