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				$	277		$	36,030
Technician wages	$	8,100					$	7,950
Mobile lab operating expenses	$	4,800		$	31		$	8,980
Office expenses	$	2,400		$	2		$	2,530
Advertising expenses	$	1,580					$	1,650
Insurance	$	2,870					$	2,870
Miscellaneous expenses	$	930		$	2		$	515

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 $8,980. The company expected to work 140 jobs in February, but actually worked 144 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

					Flexible	Static
			Fixed	Variable	budget	budget
			component	component
no of jobs					144	140
	Revenue			277	39888	38780
	Technicial wages		8,100		8,100	8,100
mobile lab operating expense			4,800	31	9264	9140
office expense			2,400	2	2688	2680
advertising expense			1,580		1,580	1,580
insurance			2,870		2,870	2,870
miscellaneous expense			930	2	1218	1210
total expense			20680	35	25,720	25,580
	Flexible budget = fixed component + 144 jobs *variable component
	Static budget    = Fixed component + 140 jobs *variable component
		Flexible budget performance report
			Actual	Revenue & spending		Flexible	Activity variance		Static budget
			budget	variance		budget
no of jobs			144			144			140
	Revenue		36,030	3,858	U	39888	1108	F	38780
less:Exoenses
	Technicial wages		7,950	150	F	8,100	0	N	8,100
mobile lab operating expense			8,980	284	F	9264	124	U	9140
office expense			2,530	158	F	2688	8	U	2680
advertising expense			1,650	70	U	1,580	0	N	1,580
insurance			2,870	0	N	2,870	0	N	2,870
miscellaneous expense			515	703	F	1,218	8	U	1,210
total expense			24,495	1,225	F	25,720	140	U	25,580
net operating income			11,535	2,633	U	14,168	968	F	13,200