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)		29,000
Revenue ($4.40q)	$	127,600
Expenses:
Raw materials ($1.90q)		55,100
Wages and salaries ($6,100 + $0.20q)		11,900
Utilities ($2,100 + $0.05q)		3,550
Facility rent ($4,000)		4,000
Insurance ($2,300)		2,300
Miscellaneous ($300 + $0.10q)		3,200
Total expense		80,050
Net operating income	$	47,550

In July, 30,000 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)		30,000
Revenue ($4.40q)	$	132,000
Expenses:
Raw materials ($1.90q)		57,000
Wages and salaries ($6,100+ $0.20q)		12,100
Utilities ($2,100 + $0.05q)		3,600
Facility rent ($4,000)		4,000
Insurance ($2,300)		2,300
Miscellaneous ($300 + $0.10q)		3,300
Total expense		82,300
Net operating income	$	49,700

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

Answer:

Flight Café
For the month ended July 31
	Activity Variance
Revenue	$4,400	F
Expenses:
Raw materials	$1,900	U
Wages and salaries	$200	U
Utilities	$50	U
Facility rent	$0	None
Insurance	$0	None
Miscellaneous	$100	U
Total expense	$2,250	U
Net operating income	$2,150	F

Calculations:

	Flexible budget	Activity variance		Planning budget
Budgeted meals (q)	30,000			29,000
Revenue	$132,000	$4,400	Favorable	$127,600
Expenses:
Raw materials	$57,000	$1,900	Unfavorable	$55,100
Wages and salaries	$12,100	$200	Unfavorable	$11,900
Utilities	$3,600	$50	Unfavorable	$3,550
Facility rent	$4,000	$0	None	$4,000
Insurance	$2,300	$0	None	$2,300
Miscellaneous	$3,300	$100	Unfavorable	$3,200
Total expense	$82,300	$2,250	Unfavorable	$80,050
Net operating income	$49,700	$2,150	Favorable	$47,550

For revenues and net operating income, If Flexible is more than the planning then it is favorable. Otherwise, Unfavorable

For expenses, If Planing is more than the Flexible budget then it is favorable. Otherwise, Unfavorable.