Question

Exercise 9-2 Activity Variances [LO9-2] Flight Café prepares in-flight meals for airlines in its kitchen located...

Exercise 9-2 Activity Variances [LO9-2]

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) 20,000 Revenue (\$3.90q) \$ 78,000 Expenses: Raw materials (\$2.20q) 44,000 Wages and salaries (\$6,500 + \$0.20q) 10,500 Utilities (\$1,900 + \$0.05q) 2,900 Facility rent (\$4,000) 4,000 Insurance (\$2,000) 2,000 Miscellaneous (\$700 + \$0.10q) 2,700 Total expense 66,100 Net operating income \$ 11,900

In July, 21,000 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) 21,000 Revenue (\$3.90q) \$ 81,900 Expenses: Raw materials (\$2.20q) 46,200 Wages and salaries (\$6,500+ \$0.20q) 10,700 Utilities (\$1,900 + \$0.05q) 2,950 Facility rent (\$4,000) 4,000 Insurance (\$2,000) 2,000 Miscellaneous (\$700 + \$0.10q) 2,800 Total expense 68,650 Net operating income \$ 13,250

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.)

Solution:

 Flight café Activity Variances For the month ended July 31 Particulars Flexible Budget (21000 meals) Planning Budget (20000 meals) Variances Fav. / Unfav. Revenue \$81,900.00 \$78,000.00 \$3,900.00 F Expenses: Raw Materials \$46,200.00 \$44,000.00 \$2,200.00 U Wages and salaries \$10,700.00 \$10,500.00 \$200.00 U Utilities \$2,950.00 \$2,900.00 \$50.00 U Facility rent \$4,000.00 \$4,000.00 \$0.00 None Insurance \$2,000.00 \$2,000.00 \$0.00 None Miscellaneous \$2,800.00 \$2,700.00 \$100.00 U Total Expenses \$68,650.00 \$66,100.00 \$2,550.00 U Net Operating Income \$13,250.00 \$11,900.00 \$1,350.00 F