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 $ 39,100 Technician wages $ 8,100 $ 7,950 Mobile lab operating expenses $ 4,900 $ 32 $ 9,540 Office expenses $ 2,600 $ 4 $ 3,050 Advertising expenses $ 1,600 $ 1,670 Insurance $ 2,880 $ 2,880 Miscellaneous expenses $ 950 $ 2 $ 555 The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,900 plus $32 per job, and the actual mobile lab operating expenses for February were $9,540. The company expected to work 150 jobs in February, but actually worked 156 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.)

Answer 1

• Requirement asked

	Actual Result	Revenue & Spending Variance		Flexible Budget	Activity variance		Planning Static Budget
Jobs	156			156			150
	[A]	[B = Difference between A & C]		[C = Fixed + (Var x Actual units)]	[D = Difference between C & E]		[E= Fixed + (Var x Planned units)]
Revenues	$39,100	$4,424	U	$43,524	$1,674	F	$41,850
Expenses:
Technical wages	$7,950	$150	F	$8,100	$0	None	$8,100
Mobile lab operating expenses	$9,540	$352	F	$9,892	$192	U	$9,700
Office expenses	$3,050	$174	F	$3,224	$24	U	$3,200
Advertising expense	$1,670	$70	U	$1,600	$0	None	$1,600
Insurance	$2,880	$0	N	$2,880	$0	None	$2,880
Miscellaneous expense	$555	$707	F	$1,262	$12	U	$1,250
Total Expenses	$25,645	$1,313	F	$26,958	$228	U	$26,730
Net Operating Income	$13,455	$3,111	U	$16,566	$1,446	F	$15,120

• Working

	WORKING COLUMNS
Jobs
	Fixed part	+(	Variable part	x	Actual/Planned units	)
Revenues		(	$             279.00	x	156 or 150	)
Expenses:
Technical wages	$8,100	+(	$                      -	x	156 or 150	)
Mobile lab operating expenses	$4,900	+(	$               32.00	x	156 or 150	)
Office expenses	$2,600	+(	$                  4.00	x	156 or 150	)
Advertising expense	$1,600	+(	$                      -	x	156 or 150	)
Insurance	$2,880	+(	$                      -	x	156 or 150	)
Miscellaneous expense	$950	+(	$                  2.00	x	156 or 150	)

Conceptual notes:
#1: Flexible Budget data is based on 'budgeted rates' applied on 'actual level/output/units'
#2: Spending Variance = Difference between 'Actual data' and 'Flexible Budget data'
#3: Activity Variance = Difference between 'Flexible Budget data' and 'Static/Planned Budget data'.
* Favourable Variance in case of Revenues occurs when:
>Actual revenues are MORE than Flexible budget revenues [Spending Variance]
>Flexible budget revenues are MORE than Static/Planned budget revenues [Activity Variance]
* Unfavourable Variance in case of Revenues occurs when:
>Actual revenues are LESS than Flexible budget revenues [Spending Variance]
>Flexible budget revenues are LESS than Static/Planned budget revenues [Activity Variance]
* Favourable Variance in case of Expenses/Costs occurs when:
>Actual expenses/costs are LESS than Flexible budget expense/costs [Spending Variance]
>Flexible budget expenses/costs are LESS than Static/Planned budget expenses/costs [Activity Variance]
* Unfavourable Variance in case of Expenses/Costs occurs when:
>Actual expenses/costs are MORE than Flexible budget expense/costs [Spending Variance]
>Flexible budget expenses/costs are MORE than Static/Planned budget expenses/costs [Activity Variance]