Question

Flight Café prepares in-flight meals for airlines in its kitchen located next to a local airport. The company’s planning budget for July appears below: Flight Café Planning Budget For the Month Ended July 31 Budgeted meals (q) 29,000 Revenue ($4.00q) $ 116,000 Expenses: Raw materials ($1.90q) 55,100 Wages and salaries ($6,500 + $0.20q) 12,300 Utilities ($2,100 + $0.05q) 3,550 Facility rent ($3,900) 3,900 Insurance ($2,700) 2,700 Miscellaneous ($800 + $0.10q) 3,700 Total expense 81,250 Net operating income $ 34,750 In July, 30,000 meals were actually served. The company’s flexible budget for this level of activity appears below: Flight Café Flexible Budget For the Month Ended July 31 Budgeted meals (q) 30,000 Revenue ($4.00q) $ 120,000 Expenses: Raw materials ($1.90q) 57,000 Wages and salaries ($6,500+ $0.20q) 12,500 Utilities ($2,100 + $0.05q) 3,600 Facility rent ($3,900) 3,900 Insurance ($2,700) 2,700 Miscellaneous ($800 + $0.10q) 3,800 Total expense 83,500 Net operating income $ 36,500 Required: 1. Calculate the company’s activity variances for July. (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

Solution: Calculation of Activity Variance:
		Flexible budget	Planned Budget	Activity Variance	Favorable/unfavorable
Revenue		120000	116000	4000	F
Expenses:
Raw material (6300 litres*5.75)		57000	55100	1900	U
Wages (6700+6300*2.50)		12500	12300	200	U
Utilities(2730+6300*1.30)		3600	3550	50	U
Rent		3900	3900	0	None
Insurance		2700	2700	0	None
Miscellaneous [760+(1.45*6300)]		3800	3700	100	U
Total expenses		83500	81250	2250	U
Net operating income		36500	34750	1750	F