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				$	360		$	18,950
Technician wages	$	6,400					$	6,450
Mobile lab operating expenses	$	2,900		$	35		$	4,530
Office expenses	$	2,600		$	2		$	3,050
Advertising expenses	$	970					$	995
Insurance	$	1,680					$	1,680
Miscellaneous expenses	$	500		$	3		$	465

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $2,900 plus $35 per job, and the actual mobile lab operating expenses for February were $4,530. The company expected to work 50 jobs in February, but actually worked 52 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

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	52			52			50
	Revenue	$18,950	$230	F	$18,720	$720	F	$18,000
	Expenses:
	Technical wages	$6,450	$50	U	$6,400	$0	none	$6,400
	Mobile lab operating expenses	$4,530	$190	F	$4,720	$70	U	$4,650
	Office expenses	$3,050	$346	U	$2,704	$4	U	$2,700
	Advertising expenses	$995	$25	U	$970	$0	none	$970
	Insurance	$1,680	$0	none	$1,680	$0	none	$1,680
	Miscellaneous expenses	$465	$191	F	$656	$6	U	$650
	Total expenses	$17,170	$40	U	$17,130	$80	U	$17,050
	Net operating income	$1,780	$190	F	$1,590	$640	F	$950
	*Calculation of Flexible & Planning budget:
		Flexible Budget	Planning Budget
	Jobs	52	50
	Revenue	$360 * 52	$360 * 50
	Expenses:
	Technical wages	$6,400	$6,400
	Mobile lab operating expenses	$2,900 + ($35 * 52)	$2,900 + ($35 * 50)
	Office expenses	$2,600 + ($2 * 52)	$2,600 + ($2 * 50)
	Advertising expenses	$970	$970
	Insurance	$1,680	$1,680
	Miscellaneous expenses	$500 + ($3 * 52)	$500 + ($3 * 50)
	*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 revenue or net operating income and decrease in expenses from flexible budget to actual results =   Favorable.
	*Decrease in revenue or net operating income and increase in expenses from flexible budget to actual results =   Unfavorable.