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		165		160
Revenue	$	36,990	$	36,000	$	990	F
Expenses:
Instructor wages		10,440		10,240		200	U
Aircraft depreciation		5,940		5,760		180	U
Fuel		3,540		3,040		500	U
Maintenance		2,820		2,710		110	U
Ground facility expenses		2,010		2,090		80	F
Administration		4,275		4,340		65	F
Total expense		29,025		28,180		845	U
Net operating income	$	7,965	$	7,820	$	145	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	$225q
Instructor wages	$64q
Aircraft depreciation	$36q
Fuel	$19q
Maintenance	$ 630 + $13q
Ground facility expenses	$1,610 + $3q
Administration	$4,180 + $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).) TipTop Flight School Flexible Budget Performance Report For the Month Ended July 31 Actual Results Revenue and Spending Variances Flexible Budget ActivityVariances Lessons Revenue Expenses: Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Total expense Net operating income

Answer 1

	Tiptop Flight School
	Flexible Budget Performance Report
	For the Month Ended August 31
		Revenue &		Adjusted
	Actual	Spending		Flexible	Activity		Planning
	Results	Variances		Budget	Variances		Budget
Lessons (q)	165			165			160
Revenue ($225q)	$36,990	($135)	F	$37,125	$1,125	F	$36,000
Expenses:
Instructor wages (($64q)	$10,440	($120)	F	$10,560	$320	U	$10,240
Aircraft depreciation ($36q)	5,940	0		5,940	180	U	5,760
Fuel ($19q)	3,540	405	U	3,135	95	U	3,040
Maintenance ($630 + $13q)	2,820	45	U	2,775	65	U	2,710
Ground Facility Exp. ($1,610 + $3q)	2,010	(95)	F	2,105	15	U	2,090
Administratration ($4180 + $1q)	4,275	(70)	F	4,345	5	U	4,340
Total expense	$29,025	$165	U	$28,860	$680	U	$28,180
Net operating income	$7,965	($300)	U	$8,265	$445	F	$7,820