Flexible Budgets and Variance Analysis to Monitor Performance
Geos operates a delivery service for local restaurants, delivering call-in, to-go meals for restaurant customers. Variable overhead costs are budgeted at $3 per hour, and the typical roundtrip takes a driver 45 minutes to complete. Actual results for March follow.
Number of roundtrips run: 1,560
Hours of delivery time: 1,250
Variable overhead cost incurred: $3,450
Geos uses flexible budgets and variance analysis to monitor performance.
A. Prepare a flexible-budget performance report that shows (1) actual variable overhead, (2) the amount of variable overhead that should have been incurred for the number of roundtrips taken, and (3) the variance between these amounts.
B. Compute the company's variable-overhead spending and efficiency variances.
C. Compare the variances that you computed in requirements "A" and "B," and comment on your findings.