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 Revenue Technician wages Mobile lab operating expenses Office expenses Advertising expenses Insurance Miscellaneous expenses $ 8,600 $ 4,500 $ 2,500 1,570 2,860 $ 960 Variable Actual Total Component per Job for February $ 277 $ 36,030 $ 8,450 $ 34 $ 9, 100 $ 3 $ 2,770 $ 1,640 $ 2,860 $ 2. $ 545 ok AAtA int The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,500 plus $34 per job, and the actual mobile lab operating expenses for February were $9,100. The company expected to work 140 jobs in February, but actually worked 144 jobs. Required: Prepare a flexible budget performance report showing Air Qual 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

Ans.	AIRQUAL TEST CORPORATION
	Flexible Budget Performance Report
	For the Month Ended February 28
		Actual Results	Spending variance		Flexible Budget	Activity variance		Planning Budget
	Jobs	144			144			140
	Revenue	$36,030	$3,858	U	$39,888	$1,108	F	$38,780
	Expenses:
	Technical wages	$8,450	$150	F	$8,600	$0	none	$8,600
	Mobile lab operating expenses	$9,100	$296	F	$9,396	$136	U	$9,260
	Office expenses	$2,770	$162	F	$2,932	$12	U	$2,920
	Advertising expenses	$1,640	$70	U	$1,570	$0	none	$1,570
	Insurance	$2,860	$0	none	$2,860	$0	none	$2,860
	Miscellaneous expenses	$545	$703	F	$1,248	$8	U	$1,240
	Total expenses	$25,365	$1,241	F	$26,606	$156	U	$26,450
	Net operating income	$10,665	$2,617	U	$13,282	$952	F	$12,330
	*Calculation of Flexible & Planning budget:
		Flexible Budget	Planning Budget
	Jobs	144	140
	Revenue	$277 * 144	$277 * 140
	Expenses:
	Technical wages	$8,600	$8,600
	Mobile lab operating expenses	$4,500 + ($34 * 144)	$4,500 + ($34 * 140)
	Office expenses	$2,500 + ($3 * 144)	$2,500 + ($3 * 140)
	Advertising expenses	$1,570	$1,570
	Insurance	$2,860	$2,860
	Miscellaneous expenses	$960 + ($2 * 144)	$960 + ($2 * 140)
	*Flexible budget is prepared on the basis of actual units.
	*Fixed costs remain constant on each level of sales.
	Revenue & Spending variance   =   Actual results - Flexible budget
	Activity variance =   Flexible budget - Planning budget
	*Increase in expenses from flexible budget to actual results & Planning budget to flexible budget =   Unfavorable.
	*Decrease in expenses from flexible budget to actual results & Planning budget to flexible budget =   Favorable.
	*Increase in revenue or net operating income from Planning budget to flexible budget and flexible budget to actual results =   Favorable.
	*Decrease in revenue or net operating income from Planning budget to flexible budget and flexible budget to actual results =   Unfavorable.