Wings 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 reportthat compares the planning budget to actual results.Arecent variancereport appears below:
Wings Flight School Variance Report For the Month Ended August 31 | |||
| Planning Budget | Actual Results | Variance |
Lessons | 200 | 210 |
|
Revenue | $45,000 | $47,300 | $2,300 F |
Expenses: | |||
Instructor wages | 12,400 | 12,910 | 510 U |
Aircraft depreciation | 11,400 | 11 ,970 | 570 U |
Fuel | 4,200 | 5,150 | 950U |
Maintenance | 3,270 | 3,470 | 200 U |
Ground facility expenses | 2,440 | 2,350 | 90 F |
Administration | 4,410 | 4,340 | 70 F |
Total expense | 38,120 | 40,190 | 2,070 U |
Net operating income | $ 6,880 | $ 7,110 | $ 230 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 August. but the report shows an unfavorable variance.
The planning budget was developed using the following formulas. where qis the number of lesson, sold:
Revenue . | $ 225q |
Instructor wages | $ 62q |
Aircraft depreciation . | $ 57q |
Fuel . | $ 21q |
Maintenance . | $ 670 + $ 13q |
Grounc facility expenses . | $1 ,640 + $4q |
Administration . | $4,210 + $1 q |
Required:
1. Should the owner feel frustrated with the variance reports? Explain.
2. Prepare a flexible budget performance report for the school forAugust.
3. Evaluate the school’s performance for August.
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