Question

Problem 9-22 Critique a Report; Prepare a Performance Report [LO9-1, LO9-2, LO9-3, LO9-4, LO9-6]

TipTop 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 report that compares the planning budget to actual results. A recent variance report appears below:

TipTop Flight School Variance Report For the Month Ended July 31
	Actual Results			Planning Budget			Variances
Lessons		200			195
Revenue	$	49,810		$	48,750		$	1,060	F
Expenses:
Instructor wages		13,815			13,650			165	U
Aircraft depreciation		8,000			7,800			200	U
Fuel		3,780			3,120			660	U
Maintenance		3,350			3,185			165	U
Ground facility expenses		2,250			2,340			90	F
Administration		3,575			3,695			120	F
Total expense		34,770			33,790			980	U
Net operating income	$	15,040		$	14,960		$	80	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 July, but the report shows an unfavorable variance.

The planning budget was developed using the following formulas, where q is the number of lessons sold:

	Cost Formulas
Revenue	$250q
Instructor wages	$70q
Aircraft depreciation	$40q
Fuel	$16q
Maintenance	$650 + $13q
Ground facility expenses	$1,950 + $2q
Administration	$3,500 + $1q

  
Required:

2. Complete the flexible budget performance report for the school 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

2. Complete the flexible budget performance report for the school 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.)

	Actual results	Revenue and spending variance	Flexible budget	Activity variance	Planning budget
Lessons	200		200		195
Revenue	49810	190 U	50000	1250 F	48750
Expenses
Instructor wages	13815	185 F	14000	350 U	13650
Aircraft depreciation	8000	0 None	8000	200 U	7800
Fuel	3780	580 U	3200	80 U	3120
Maintenance	3350	100 U	3250	65 U	3185
Ground facility expenses	2250	100 F	2350	10 U	2340
Administration	3575	125 F	3700	5 U	3695
Total expense	34770	270 U	34500	710 U	33790
Net operating income	15040	460 U	15500	540 F	14960