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				$	279		$	33,520
Technician wages	$	8,500					$	8,350
Mobile lab operating expenses	$	4,800		$	31		$	8,670
Office expenses	$	2,500		$	2		$	2,610
Advertising expenses	$	1,620					$	1,690
Insurance	$	2,870					$	2,870
Miscellaneous expenses	$	960		$	2		$	525

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 138 jobs.

Required:

Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February

Answer 1

					Flexible	Static
			Fixed	Variable	budget	budget
			component	component
no of jobs					138	130
	Revenue			279	38502	36270
	Technicial wages		8,500		8,500	8,500
mobile lab operating expense			4,800	31	9078	8830
office expense			2,500	2	2776	2760
advertising expense			1,620		1,620	1,620
insurance			2,870		2,870	2,870
miscellaneous expense			960	2	1236	1220
total expense			21250	35	26,080	25,800
	Flexible budget = fixed component + 138 jobs *variable component
	Static budget    = Fixed component + 130 jobs *variable component
		Flexible budget performance report
			Actual	Revenue & spending		Flexible	Activity variance		Static budget
			budget	variance		budget
no of jobs			138			138			130
	Revenue		33,520	4,982	U	38502	2232	F	36270
less:Exoenses
	Technicial wages		8,350	150	F	8,500	0	N	8,500
mobile lab operating expense			8,670	408	F	9078	248	U	8830
office expense			2,610	166	F	2776	16	U	2760
advertising expense			1,690	70	U	1,620	0	N	1,620
insurance			2,870	0	N	2,870	0	N	2,870
miscellaneous expense			525	711	F	1,236	16	U	1,220
total expense			24,715	1,365	F	26,080	280	U	25,800
net operating income			8,805	3,617	U	12,422	1,952	F	10,470