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)		21,000
Revenue ($3.80q)	$	79,800
Expenses:
Raw materials ($2.20q)		46,200
Wages and salaries ($6,200 + $0.20q)		10,400
Utilities ($2,100 + $0.05q)		3,150
Facility rent ($3,200)		3,200
Insurance ($2,200)		2,200
Miscellaneous ($600 + $0.10q)		2,700
Total expense		67,850
Net operating income	$	11,950

In July, 22,000 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)		22,000
Revenue ($3.80q)	$	83,600
Expenses:
Raw materials ($2.20q)		48,400
Wages and salaries ($6,200+ $0.20q)		10,600
Utilities ($2,100 + $0.05q)		3,200
Facility rent ($3,200)		3,200
Insurance ($2,200)		2,200
Miscellaneous ($600 + $0.10q)		2,800
Total expense		70,400
Net operating income	$	13,200

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

	Flexible budget	Activity variances		Planning budget
Budgeted meals (q)	22000			21000
Revenue ($3.80q)	83600	3800	F	79800
Expenses:
Raw materials ($2.20q)	48400	2200	U	46200
Wages and salaries ($6,200+ $0.20q)	10600	200	U	10400
Utilities ($2,100 + $0.05q)	3200	50	U	3150
Facility rent ($3,200)	3200	0	None	3200
Insurance ($2,200)	2200	0	None	2200
Miscellaneous ($600 + $0.10q)	2800	100	U	2700
Total expense	70400	2550	U	67850
Net operating income	13200	1250	F	11950