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				$	279		$	36,310
Technician wages	$	8,400					$	8,250
Mobile lab operating expenses	$	4,900		$	34		$	9,500
Office expenses	$	2,400		$	4		$	2,810
Advertising expenses	$	1,550					$	1,620
Insurance	$	2,890					$	2,890
Miscellaneous expenses	$	940		$	1		$	385

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,900 plus $34 per job, and the actual mobile lab operating expenses for February were $9,500. 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. ( This report must include - jobs, revenue, expenses: technological wages, mobile lab operating expense, office expense, advertising expense, insurance, and miscellaneous expenses for both flexible and planning budget. (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			279	40176	39060
	Technicial wages		8,400		8,400	8,400
mobile lab operating expense			4,900	34	9796	9660
office expense			2,400	4	2976	2960
advertising expense			1,550		1,550	1,550
insurance			2,890		2,890	2,890
miscellaneous expense			940	1	1084	1080
total expense					26,696	26,540
	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		36,310	3,866	U	40176	1116	F	39060
less:Exoenses
	Technicial wages		8,250	150	F	8,400	0	N	8,400
mobile lab operating expense			9,500	296	F	9796	136	U	9660
office expense			2,810	166	F	2976	16	U	2960
advertising expense			1,620	70	U	1,550	0	N	1,550
insurance			2,890	0	N	2,890	0	N	2,890
miscellaneous expense			385	699	F	1,084	0	N	1,080
total expense			25,455	1,241	F	26,696	156	U	26,540
net operating income			10,855	2,625	U	13,480	960	F	12,520