Question

Flight Café prepares in-flight meals for airlines in its kitchen located next to a local airport. The company’s planning budget for July appears below:

Flight Café
Planning Budget
For the Month Ended July 31
Budgeted meals (q)		27,000
Revenue ($4.40q)	$	118,800
Expenses:
Raw materials ($2.00q)		54,000
Wages and salaries ($6,300 + $0.20q)		11,700
Utilities ($2,200 + $0.05q)		3,550
Facility rent ($3,700)		3,700
Insurance ($2,300)		2,300
Miscellaneous ($600 + $0.10q)		3,300
Total expense		78,550
Net operating income	$	40,250

In July, 28,000 meals were actually served. The company’s flexible budget for this level of activity appears below:

Flight Café
Flexible Budget
For the Month Ended July 31
Budgeted meals (q)		28,000
Revenue ($4.40q)	$	123,200
Expenses:
Raw materials ($2.00q)		56,000
Wages and salaries ($6,300+ $0.20q)		11,900
Utilities ($2,200 + $0.05q)		3,600
Facility rent ($3,700)		3,700
Insurance ($2,300)		2,300
Miscellaneous ($600 + $0.10q)		3,400
Total expense		80,900
Net operating income	$	42,300

Required:

1. Calculate the company’s activity variances for July. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Answer 1

Answer:

Activity variances
	Budgeted (A)	Flexible budget (B)	Variance (A-B)	Effect
Units	27,000	28,000
Revenue	$ 118,800	$ 123,200	$ 4,400	Favorable
Expenses:
Raw Materials	$   54,000	$   56,000	$ 2,000	Unfavorable
Wages and salaries	$   11,700	$   11,900	$     200	Unfavorable
Utilities	$     3,550	$     3,600	$       50	Unfavorable
Facility rent	$     3,700	$     3,700	$        -	No effect
Insurance	$     2,300	$     2,300	$        -	No effect
Miscellaneous	$     3,300	$     3,400	$     100	Unfavorable
Total expense	$   78,550	$   80,900	$ 2,350	Unfavorable
Net Operating Income	$   40,250	$   42,300	$ 2,050	Favorable

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