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				$	275		$	30,250
Technician wages	$	8,300					$	8,150
Mobile lab operating expenses	$	4,900		$	35		$	8,940
Office expenses	$	2,300		$	3		$	2,510
Advertising expenses	$	1,570					$	1,640
Insurance	$	2,880					$	2,880
Miscellaneous expenses	$	940		$	1		$	365

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,900 plus $35 per job, and the actual mobile lab operating expenses for February were $8,940. The company expected to work 120 jobs in February, but actually worked 126 jobs.

Required:

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

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	126			126			120
	Revenue	$30,250	$4,400	U	$34,650	$1,650	F	$33,000
	Expenses:
	Technical wages	$8,150	$150	F	$8,300	$0	none	$8,300
	Mobile lab operating expenses	$8,940	$370	F	$9,310	$210	U	$9,100
	Office expenses	$2,510	$168	F	$2,678	$18	U	$2,660
	Advertising expenses	$1,640	$70	U	$1,570	$0	none	$1,570
	Insurance	$2,880	$0	none	$2,880	$0	none	$2,880
	Miscellaneous expenses	$365	$701	F	$1,066	$6	U	$1,060
	Total expenses	$24,485	$1,319	F	$25,804	$234	U	$25,570
	Net operating income	$5,765	$3,081	U	$8,846	$1,416	F	$7,430
	*Calculation of Flexible & Planning budget:
		Flexible Budget	Planning Budget
	Jobs	126	120
	Revenue	$275 * 126	$275 * 120
	Expenses:
	Technical wages	$8,300	$8,300
	Mobile lab operating expenses	$4,900 + ($35 * 126)	$4,900 + ($35 * 120)
	Office expenses	$2,300 + ($3 * 126)	$2,300 + ($3 * 120)
	Advertising expenses	$1,570	$1,570
	Insurance	$2,880	$2,880
	Miscellaneous expenses	$940 + ($1 * 126)	$940 + ($1 * 120)
	*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.