Question

Wyckam Manufacturing Inc. has provided the following information concerning its manufacturing costs:

	Fixed Cost per Month			Cost per Machine-Hour
Direct materials				$	5.50
Direct labor	$	42,000
Supplies				$	0.10
Utilities	$	1,400		$	0.25
Depreciation	$	15,400
Insurance	$	11,300

For example, utilities should be $1,400 per month plus $0.25 per machine-hour. The company expects to work 4,400 machine-hours in June. Note that the company’s direct labor is a fixed cost.

Required:

Prepare the company’s planning budget for June.

.

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)		23,000
Revenue ($4.40q)	$	101,200
Expenses:
Raw materials ($2.30q)		52,900
Wages and salaries ($6,100 + $0.20q)		10,700
Utilities ($1,900 + $0.05q)		3,050
Facility rent ($3,600)		3,600
Insurance ($2,500)		2,500
Miscellaneous ($800 + $0.10q)		3,100
Total expense		75,850
Net operating income	$	25,350

In July, 24,000 actually meals were 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)		24,000
Revenue ($4.40q)	$	105,600
Expenses:
Raw materials ($2.30q)		55,200
Wages and salaries ($6,100+ $0.20q)		10,900
Utilities ($1,900 + $0.05q)		3,100
Facility rent ($3,600)		3,600
Insurance ($2,500)		2,500
Miscellaneous ($800 + $0.10q)		3,200
Total expense		78,500
Net operating income	$	27,100

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

Solution:

Activity Variance is the difference between planning budget and flexible budget.

Flight Café
Activity Budget Variance Report
For the Month Ended July 31
	Planning Budget	Flexible Budget	Activity Variance
Budgeted meals	23,000	24,000	1,000	F
Revenue	101,200	105,600	4,400	F
Expenses:
Raw materials	52,900	55,200	2,300	U
Wages and salaries	10,700	10,900	200	U
Utilities	3,050	3,100	50	U
Facility rent	3,600	3,600	0	None
Insurance	2,500	2,500	0	None
Miscellaneous	3,100	3,200	100	U
Total expense	75,850	78,500	2,650	U
Net operating income	25,350	27,100	1,750	F

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