Question

TipTop Flight School offers flying lessons at a small municipal airport. The school's owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. A recent variance report appears below: TipTop Flight School Variance Report For the Month Ended July 31 Actual Results 210 Planning Budget 205 Variances Lessons $ 52,230 $ 51,250 $ 980 F Revenue Expenses: Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Total expense Net operating income 14,530 6,720 3,655 3,415 1,910 3,435 33,665 18,565 14,350 6,560 3,075 3,235 1,960 3,545 32,725 $ 18,525 $ 180 U 160 U 580 U 180 U 50 F 110 F 940 U 40 F $ After several months of using such variance reports, the owner has become frustrated. For example, she is quite confident that instructor wages were very tightly controlled in July, but the 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 $2509 $709 $329 $159 $570 + $139 $1,550 + $29 $3,340 + $14 Required: 2. Complete the flexible budget performance report for the school for July (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (.e., zero variance). Input all amounts as positive values.)

Answer 1

Ans.	TipTop Flight School
	Flexible Budget Performance Report
	For the Month Ended JULY 31
		Actual Results	Revenue & Spending variance	Flexible Budget	Activity variance	Planning Budget
	Lessons	210			210			205
	Revenue	$52,230	$270	U	$52,500	$1,250	F	$51,250
	Expenses:
	Instructor wages	$14,530	$170	F	$14,700	$350	U	$14,350
	Aircraft depreciation	$6,720	$0	none	$6,720	$160	U	$6,560
	Fuel	$3,655	$505	U	$3,150	$75	U	$3,075
	Maintenance	$3,415	$115	U	$3,300	$65	U	$3,235
	Ground facility expenses	$1,910	$60	F	$1,970	$10	U	$1,960
	Administration	$3,435	$115	F	$3,550	$5	U	$3,545
	Total expenses	$33,665	$275	U	$33,390	$665	U	$32,725
	Net operating income	$18,565	$545	U	$19,110	$585	F	$18,525
	*CALCULATIONS:
	*Flexible budget is prepared on the basis of actual units.
	*Fixed costs remain constant on each level of sales.
	*Calculations for Flexible Budget:
		Flexible Budget
	Lessons	210
	Revenue	$250 * 210
	Expenses:
	Instructor wages	$70 * 210
	Aircraft depreciation	$32 * 210
	Fuel	$15 * 210
	Maintenance	$570 + ($13 * 210)
	Ground facility expenses	$1,550 + ($2 * 210)
	Administration	$3,340 + ($1 * 210)
	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 Planning budget to Flexible budget and flexible budget to actual results =   Favorable.
	*Decrease in revenue or net operating income and increase in expenses from Planning budget to flexible budget and flexible budget to actual results =   Unfavorable.