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)		22,000
Revenue ($3.90q)	$	85,800
Expenses:
Raw materials ($2.20q)		48,400
Wages and salaries ($6,100 + $0.20q)		10,500
Utilities ($2,100 + $0.05q)		3,200
Facility rent ($3,300)		3,300
Insurance ($2,000)		2,000
Miscellaneous ($700 + $0.10q)		2,900
Total expense		70,300
Net operating income	$	15,500

In July, 23,000 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)		23,000
Revenue ($3.90q)	$	89,700
Expenses:
Raw materials ($2.20q)		50,600
Wages and salaries ($6,100+ $0.20q)		10,700
Utilities ($2,100 + $0.05q)		3,250
Facility rent ($3,300)		3,300
Insurance ($2,000)		2,000
Miscellaneous ($700 + $0.10q)		3,000
Total expense		72,850
Net operating income	$	16,850

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

• Requirement asked

	Activity variance
	[D = Difference between C & E]
Revenues	$3,900	F
Expenses:
Raw materials	$2,200	U
Wages & Salaries	$200	U
Utilities	$50	U
Facility Rent	$0	None
Insurance	$0	None
Miscellaneous	$100	U
Total Expenses	$2,550	U
Net Operating Income	$1,350	F

--Working

	Flexible Budget	Planning Static Budget
No. of meals	23,000	22,000
	[C = Fixed + (Var x Actual units)]	[E= Fixed + (Var x Planned units)]
Revenues	$89,700	$85,800
Expenses:
Raw materials	$50,600	$48,400
Wages & Salaries	$10,700	$10,500
Utilities	$3,250	$3,200
Facility Rent	$3,300	$3,300
Insurance	$2,000	$2,000
Miscellaneous	$3,000	$2,900
Total Expenses	$72,850	$70,300
Net Operating Income	$16,850	$15,500