Question

In: Accounting

TipTop Flight School offers flying lessons at a small municipal airport. The school’s owner and manager...

TipTop Flight School offers flying lessons at a small municipal airport. The school’s owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. A recent variance report appears below:

TipTop Flight School
Variance Report
For the Month Ended July 31
Actual
Results
Planning
Budget
Variances
Lessons 155 150
Revenue $ 36,920 $ 36,000 $ 920 F
Expenses:
Instructor wages 9,870 9,750 120 U
Aircraft depreciation 4,960 4,800 160 U
Fuel 2,470 1,950 520 U
Maintenance 2,280 2,160 120 U
Ground facility expenses 1,680 1,700 20 F
Administration 3,440 3,520 80 F
Total expense 24,700 23,880 820 U
Net operating income $ 12,220 $ 12,120 $ 100 F

After several months of using such variance reports, the owner has become frustrated. For example, she is quite confident that instructor wages were very tightly controlled in July, but the report shows an unfavorable variance.

The planning budget was developed using the following formulas, where q is the number of lessons sold:

Cost Formulas
Revenue $240q
Instructor wages $65q
Aircraft depreciation $32q
Fuel $13q
Maintenance $510 + $11q
Ground facility expenses $1,250 + $3q
Administration $3,220 + $2q

  
Required:

2. Complete the flexible budget performance report for the school for July.

Solutions

Expert Solution

Tip Top Flight School
Flexible Budget Performance Report
For the month ended July 31
Actual Results Revenue/Spending Flexible   Activity Planning
Variance Budget Variance Budget
($) ($) ($) ($)
Lessons (q)                     155.00                  155.00          150.00
Revenue ($240q)               36,920.00                 280.00 U            37,200.00                1,200.00 F    36,000.00
Expenses:
Instructor wages ($65q)                 9,870.00                 205.00 F            10,075.00                    325.00 U      9,750.00
Aircraft depreciation ($32q)                 4,960.00                          -        -                4,960.00                    160.00 U      4,800.00
Fuel ($13q)                 2,470.00                 455.00 U              2,015.00                      65.00 U      1,950.00
Maintenance ($510 + $11q)                 2,280.00                   65.00 U              2,215.00                      55.00 U      2,160.00
Ground facility expenses ($1,250 + $3q)                 1,680.00                   35.00 F              1,715.00                      15.00 U      1,700.00
Administration ($3,220 + $2q)                 3,440.00                   90.00 F              3,530.00                      10.00 U      3,520.00
Total Expense               24,700.00                 190.00 U            24,510.00                    630.00 U    23,880.00
Net Operating Income               12,220.00                 470.00 U            12,690.00                    570.00 F    12,120.00
(Revenue - Expenses)
Explanation
Revenue/Spending Variance = Actual Result - Flexible Budget Amount
Activity Variances = Flexible Budget Amounts - Planning Budget Amounts

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