Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company’s planning budget for December appears below:
Air Meals Planning Budget For the Month Ended December 31 | |
Budgeted meals (q) | 20,000 |
Revenue ($3 .80q) | $76,000 |
Expenses: | |
Raw materials ($2.30q) | 46,000 |
Wages and salaries ($6,400 + $0.25q) | 11,400 |
Utilities ($2,100 +$0.05q) | 3,100 |
Facility rent ($3,800) | 3,800 |
Insurance ($2,600) | 2,600 |
Miscellaneous ($700 + $0.10q) | 2,700 |
Total expense | 69,600 |
Net operating income | $ 6,400 |
In December. 21,000meals were actually served. The company’s flexible budget for this level of activity is as follows:
Air Meals Flexible Budget For the Month Ended December 31 | |
Budgeted meals (q) | 21,000 |
Revenue ($3.80q) | $79,800 |
Expenses: | |
Raw materials ($2.30q) | 48,300 |
Wages and salaries ($6,400 + $0.25q) | 11,650 |
Utilities($ 2,100 + $0.05q) | 3,150 |
Facility rent ($3,800) | 3,800 |
Insurance ($2,600) | 2,600 |
Miscellaneous ($700 + $0.10q) | 2,800 |
Total expense | 72,300 |
Net operating income | $ 7,500 |
Required:
1. Prepare a report showing the company’s activity variances for December,
2. Which of the activity variances should be of concern to management? Explain.
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