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venchlu
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Posted: 02 Jan 2010 at 11:24 \| IP Logged

In wiley Book Module 45 - Q 70:

Lanta restaurant compares monthly operating results with a static budget. When actual sales are less than budget, would Lanta usually report favorable variances on variable food costs and fixed supervisory salaries??

a. Variable food cost ( yes) and Fixed supervisory salaries (Yes)

b. Variable food cost ( yes) and Fixed supervisory salaries (no)

c.Variable food cost ( no) and Fixed supervisory salaries (Yes)

d. Variable food cost ( yes) and Fixed supervisory salaries (no)

I know choices A and C are wrong becuase fixed supervisory salaries should not be affeccted. But i have hard time figuring our will variable food costs be favorable or not?? The correct answer is B. Help!

suprarx707
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Posted: 21 Jan 2010 at 16:28 \| IP Logged

Why is answer choice d the same as answer choice b?

Anyways, here's the reason why that's true. When your actual sales are less than what is expected, you are incurring less variable costs that are tied into the sales. When you sell less, you are incurring less COGS; thus, it's favorable when you incur less COGS.

No matter how much, or little, you sell, fixed costs will be the same; thus, you wouldn't be reporting a favorable fixed variance.

Answer B is correct.

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venchlu
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Posted: 21 Jan 2010 at 16:46 \| IP Logged

Thx suprarx707
D should be Variable food cost ( no) and Fixed supervisory salaries (no) . I agree with your anlysis.

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