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				$	278		$	36,170
Technician wages	$	8,500					$	8,350
Mobile lab operating expenses	$	4,900		$	32		$	9,220
Office expenses	$	2,600		$	3		$	2,870
Advertising expenses	$	1,600					$	1,670
Insurance	$	2,880					$	2,880
Miscellaneous expenses	$	960		$	2		$	545

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,900 plus $32 per job, and the actual mobile lab operating expenses for February were $9,220. The company expected to work 140 jobs in February, but actually worked 142 jobs.

Required:

Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (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

AirQual Test
Flexible Budget Report
For the month ended February 28
		Actual results	Revenue and Spending Variances		Flexible Budget	Activity Variance		Planning Budget
Jobs	(q)	142			142			140
Revenue	($278 X q))	$     36,170	$   3,306	U	$   39,476	$         556	F	$       38,920
Expenses:
Technical wages	$                             8,500	$       8,350	$       150	F	$      8,500	$             -	None	$         8,500
Mobile lab operating expenses	($32* q) + $4900	$       9,220	$       224	F	$      9,444	$            64	U	$         9,380
office expenses	($3* q) + $2,600	$       2,870	$       156	F	$      3,026	$              6	U	$         3,020
Advertising expenses	$                             1,600	$       1,670	$         70	U	$      1,600	$             -	None	$         1,600
Insurance	$                             2,880	$       2,880	$          -	None	$      2,880	$             -	None	$         2,880
Miscellaneous expenses	($2 * q) + $960	$           545	$       699	F	$      1,244	$              4	U	$         1,240
Total expense		$     25,535	$   1,159	F	$   26,694	$            74	U	$       26,620
Net operating income		$     10,635	$   2,147	U	$   12,782	$         482	F	$       12,300