Question

Flight Café 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 July appears below:

Flight Café Planning Budget For the Month Ended July 31
Budgeted meals (q)		23,000
Revenue ($4.20q)	$	96,600
Expenses:
Raw materials ($1.90q)		43,700
Wages and salaries ($6,200 + $0.20q)		10,800
Utilities ($1,800 + $0.05q)		2,950
Facility rent ($3,100)		3,100
Insurance ($2,900)		2,900
Miscellaneous ($700 + $0.10q)		3,000
Total expense		66,450
Net operating income	$	30,150

In July, 24,000 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)		24,000
Revenue ($4.20q)	$	100,800
Expenses:
Raw materials ($1.90q)		45,600
Wages and salaries ($6,200 + $0.20q)		11,000
Utilities ($1,800 + $0.05q)		3,000
Facility rent ($3,100)		3,100
Insurance ($2,900)		2,900
Miscellaneous ($700 + $0.10q)		3,100
Total expense		68,700
Net operating income	$	32,100

Required:
1.	Compute 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 variance

Particulars	planning budget	Flexible budget	Activity variance
Meals	23000	24000
Revenue	$96600	$100800	$4200(F)
Expenses
Raw materials	$43700	$45600	$1900(U)
Wages and salaries	$10800	$11000	$200(U)
Utilities	$2950	$3000	$50(U)
Facility rent	$3100	$3100	0
Insurance	$2900	$2900	0
Miscellaneous	$3000	$3100	$100(U)
Total expenses	66450	$68700	$220(U)
Net operating income	$30150	$32100	$1950(F)