Question

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 185 180 Revenue $ 36,980 $ 36,000 $ 980 F Expenses: Instructor wages 11,360 11,160 200 U Aircraft depreciation 7,215 7,020 195 U Fuel 4,020 3,600 420 U Maintenance 2,970 2,820 150 U Ground facility expenses 2,455 2,540 85 F Administration 4,260 4,350 90 F Total expense 32,280 31,490 790 U Net operating income $ 4,700 $ 4,510 $ 190 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 $200q Instructor wages $62q Aircraft depreciation $39q Fuel $20q Maintenance $ 660 + $12q Ground facility expenses $1,640 + $5q Administration $4,170 + $1q Required: 2. Complete the flexible budget performance report for the school 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

			Flexible budget
Revenue			37000
instructor wages			11470
Aircraft depreciation			7215
fuel			3700
maintenance			2880
Ground facility expense			2565
Administration			4355
		Flexible buget = 185lessons * variable component + fixed component
		Flexible Budget Performance Report
		Actual	Revenue & spending		Flexible	Activity variance		planning
		Results	variance		budget			budget
lessons		185			185			180
Revenue		36,980	20	U	37000	1,000	F	36,000
expenses:
instructor wages		11,360	110	F	11470	310	U	11,160
Aircraft depreciation		7,215	0	N	7215	195	U	7,020
fuel		4,020	320	U	3700	100	U	3,600
maintenance		2,970	90	U	2880	60	U	2,820
Ground facility expense		2,455	110	F	2565	25	U	2,540
Administration		4,260	95	F	4355	5	U	4,350
total expense		32,280	95	U	32185	695	U	31,490
net income		4,700	115	U	4815	305	F	4,510