Question

W przeta 2. Explain the activity variances PROBLEM 9-22 Critique a Report: Prepare a Performance Report LOO Tito Flight School offers flying lessons at a small municipal air manager has been attempting to evaluate performance and control that compares the planning budget to actual results. A recent variance me 1.09-2. LO9-3, 109-4,10 The school's wet costs using a variance rep ent variance report appears below Planning Budget Variances 150 $33,000 $900 F TipTop Flight School Variance Report For the Month Ended July 31 Actual Results Lessons 155 Revenue ..... $33,900 Expenses: Instructor wages ... 9,870 Aircraft depreciation .... 5,890 Fuel 2.750 Maintenance ... 2,450 Ground facility expenses 1.540 Administration 3,320 Total expense .......... 25,820 Net operating income ...... $ 8.080 cos Our 9.750 5.700 2.250 2,330 1.550 3,390 24.970 $ 8,030 120 U 190 U 500 U 120 U 10 F 70 F 850 $ 50 F oth hac we After several months of using such variance reports, the owner has become frustrated example, she is quite confident that instructor wages were very tightly controlled in July report shows an unfavorable variance. The planning budget was developed using the following formulas, where q is the number of lessons sold: Revenue ........ Instructor wages ........ Aircraft depreciation ..... Fuel Maintenance ........... Ground facility expenses Administration Cost Formulas $2209 $654 $389 $159 $530+ $124 $1,250 + $ 24 $3,240 + $19 Required: 1. Should the owner feel frustrated with the variance reports? Explain. 2. Using Exhibit 9-8 as your guide, prepare a flexible budget performance report for the school for July. 3. Evaluate the school's performance for July. PDORIA

Answer 1

a)	No the owner should not feel frustated as the actual results should be compared
	with flexible report and not planning budget which is rigid
		Flexible buget = 155lessons * variable component + fixed component
		Flexible Budget Performance Report
		Actual	Revenue & spending		Flexible	Activity variance		planning
		Results	variance		budget			budget
lessons		155			155			150
Revenue		33,900	200	U	34100	1,100	F	33,000
expenses:
instructor wages		9,870	205	F	10075	325	U	9,750
Aircraft depreciation		5,890	0	N	5890	190	U	5,700
fuel		2,750	425	U	2325	75	U	2,250
maintenance		2,450	60	U	2390	60	U	2,330
Ground facility expense		1,540	20	F	1560	10	U	1,550
Administration		3,320	75	F	3395	5	U	3,390
total expense		25,820	185	U	25635	665	U	24,970
net income		8,080	385	U	8465	435	F	8,030
c)	We see that the instructor wages , ground facility expenses and administration expenses
	were controlled however other expenses like fuel and maintenance needs further improvement
	also the revenue variance is negative