In: Accounting
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 | $ | 278 | $ | 33,390 | |||||
Technician wages | $ | 8,300 | $ | 8,150 | |||||
Mobile lab operating expenses | $ | 4,900 | $ | 31 | $ | 8,770 | |||
Office expenses | $ | 2,800 | $ | 4 | $ | 3,170 | |||
Advertising expenses | $ | 1,600 | $ | 1,670 | |||||
Insurance | $ | 2,860 | $ | 2,860 | |||||
Miscellaneous expenses | $ | 970 | $ | 2 | $ | 535 | |||
The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,900 plus $31 per job, and the actual mobile lab operating expenses for February were $8,770. The company expected to work 130 jobs in February, but actually worked 136 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.)
Solution:
Airqual Test Corporation
Flexible Budget Performance Report
For the Month Ended February
Planning budget | Activity variance | Flexible Budget | Revenue and spending variance | Actual results | |
Jobs | 130 | 136 | 136 | ||
Revenue (278) |
$36,140 (278 x130) |
1,668 F (36140-37808) |
$37,808 (136x278) |
4,418U (37808-33390) |
$33,390 |
Expenses: |
|||||
Technician wages (8300) | 8,300 |
0 (8300-8300) |
8,300 |
150F (8300-8150) |
$8,150 |
Mobile lab operating expenses (4900 + 31q) |
$8,930 [4900+(31x130)] |
186 U (8930-9116) |
$9,116 [4900+(31x136) |
160F (9116-8770) |
$8,770 |
Office expenses (2800+4q) |
$3,320 [2800+(4x130)] |
24U (3320-3344) |
$3,344 [2800+(4x136)] |
174F (3344-3170) |
$3,170 |
Advertising expenses (1600) |
1,600 |
0 (1600-1600) |
1,600 |
70U (1600-1670) |
$1,670 |
Insurance (2860) | 2,860 |
0 (2860-2860) |
2,860 |
0 (2860-2860) |
$2,860 |
Miscellaneous expenses (970+2q) |
$1,230 [970+(2x130)] |
12 U (1230-1242) |
$1,242 [970+(2x136)] |
707F (1242-535) |
$535 |
Total expenses |
$26,240 (8300+8930+3320+1600+2860+1230) |
36 U (26240-26276) |
$26,462 (8300+9,116+3344+1600+2860+1242) |
1,121F (26276-25155) |
$25,155 |
Net operating Income |
$9,900 (36140-26240) |
1,446 F (9900-11346) |
$11,346 (37808-26462) |
3,111U (11346-8235) |
$8,235 |