Question

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.)

Answer 1

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