Question

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below: Vulcan Flyovers Operating Data For the Month Ended July 31 Actual Results Flexible Budget Planning Budget Flights (q) 55 55 53 Revenue ($350.00q) $ 16,400 $ 19,250 $ 18,550 Expenses: Wages and salaries ($3,600 + $91.00q) 8,563 8,605 8,423 Fuel ($31.00q) 1,873 1,705 1,643 Airport fees ($810 + $32.00q) 2,460 2,570 2,506 Aircraft depreciation ($10.00q) 550 550 530 Office expenses ($220 + $1.00q) 443 275 273 Total expense 13,889 13,705 13,375 Net operating income $ 2,511 $ 5,545 $ 5,175 The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount. Required: 1. Prepare a flexible budget performance report for July that includes revenue and spending variances and activity variances. (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

Solution:

All the information is given in the question related to Actual Result, Flexible Budget and Planning Budget. We need to determine Revenue and Spending Variance and Activity Variance. First of all we need to understand the meaning of Revenue and Spending Variance and Activity Variance.

Revenue and Spending Variance is the difference between actual result and flexible result. It may be Favorable or Unfavorable or None.

In case of revenue, if actual result figure is higher than flexible budget the revenue and spending variance is Favorable and vice a versa.

In case of expenses/spending, if actual result figure is higher than flexible budget the revenue and spending variance is Unfavorable and vice a versa.

Activity Variance

It is the difference between Flexible Budget and Planning (original) Budget. It may be Favorable or Unfavorable or None.

Flexible Budget Performance Report

Vulcan Flyovers
Flexible Budget Performance Report
For the Month Ended July
	Actual Result	Revenue and Spending Variance		Flexible Budget	Activity Variance		Planning Budget
Flights (q)	55			55			53
Revenue ($350q)	$16,400	$2,850	U	$19,250	$700	F	$18,550
Expenses:
Wages and salaries ($3,600 + $91q)	$8,563	$42	F	$8,605	$182	U	$8,423
Fuel ($31q)	$1,873	$168	U	$1,705	$62	U	$1,643
Airport Fees ($810 + $32q)	$2,460	$110	F	$2,570	$64	U	$2,506
Aircraft Depreciation ($10q)	$550	$0	N	$550	$20	U	$530
Office Expenses ($220 + $1q)	$443	$168	U	$275	$2	U	$273
Total Expenses	$13,889	$184	U	$13,705	$330	U	$13,375
Net Operating Income	$2,511	$3,034	U	$5,545	$370	F	$5,175

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