Question

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)		30,000
Revenue ($4.20q)	$	126,000
Expenses:
Raw materials ($1.90q)		57,000
Wages and salaries ($6,100 + $0.20q)		12,100
Utilities ($1,900 + $0.05q)		3,400
Facility rent ($3,500)		3,500
Insurance ($2,500)		2,500
Miscellaneous ($700 + $0.10q)		3,700
Total expense		82,200
Net operating income	$	43,800

In July, 31,000 actually meals were 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)		31,000
Revenue ($4.20q)	$	130,200
Expenses:
Raw materials ($1.90q)		58,900
Wages and salaries ($6,100+ $0.20q)		12,300
Utilities ($1,900 + $0.05q)		3,450
Facility rent ($3,500)		3,500
Insurance ($2,500)		2,500
Miscellaneous ($700 + $0.10q)		3,800
Total expense		84,450
Net operating income	$	45,750

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

	Planning budget	Flexible budget	Activity variances
Meals (q)	30000	31,000
Revenue ($4.20q)	126000	130,200	4,200	F
Expenses:
Raw materials ($1.90q)	57000	58,900	1,900	U
Wages and salaries ($6,100+ $0.20q)	12100	12,300	200	U
Utilities ($1,900 + $0.05q)	3400	3,450	50	U
Facility rent ($3,500)	3500	3,500	0	None
Insurance ($2,500)	2500	2,500	0	None
Miscellaneous ($700 + $0.10q)	3700	3,800	100	U
Total expense	82,200	84,450	2,250	U
Net operating income	43,800	45,750	1,950	F