Question

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February: Fixed Component per Month Variable Component per Job Actual Total for February Revenue $ 276 $ 33,130 Technician wages $ 8,100 $ 7,950 Mobile lab operating expenses $ 4,800 $ 31 $ 8,670 Office expenses $ 2,500 $ 4 $ 2,870 Advertising expenses $ 1,560 $ 1,630 Insurance $ 2,880 $ 2,880 Miscellaneous expenses $ 940 $ 2 $ 505 The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,800 plus $31 per job, and the actual mobile lab operating expenses for February were $8,670. The company expected to work 130 jobs in February, but actually worked 140 jobs. Required: Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (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

					Flexible	Static
			Fixed	Variable	budget	budget
			component	component
no of jobs					140	130
	Revenue			276	38640	35880
	Technicial wages		8,100		8,100	8,100
mobile lab operating expense			4,800	31	9140	8830
office expense			2,500	4	3060	3020
advertising expense			1,560		1,560	1,560
insurance			2,880		2,880	2,880
miscellaneous expense			940	2	1220	1200
total expense			20780	37	25,960	25,590
	Flexible budget = fixed component + 150 jobs *variable component
	Static budget    = Fixed component + 140 jobs *variable component
		Flexible budget performance report
			Actual	Revenue & spending		Flexible	Activity variance		Static budget
			budget	variance		budget
no of jobs			140			140			130
	Revenue		33,130	5,510	U	38640	2760	F	35880
less:Exoenses
	Technicial wages		7,950	150	F	8,100	0	N	8,100
mobile lab operating expense			8,670	470	F	9140	310	U	8830
office expense			2,870	190	F	3060	40	U	3020
advertising expense			1,630	70	U	1,560	0	N	1,560
insurance			2,880	0	N	2,880	0	N	2,880
miscellaneous expense			505	715	F	1,220	20	U	1,200
total expense			24,505	1,455	F	25,960	370	U	25,590
net operating income			8,625	4,055	U	12,680	2,390	F	10,290