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)		25,000
Revenue ($4.50q)	$	112,500
Expenses:
Raw materials ($2.10q)		52,500
Wages and salaries ($6,300 + $0.20q)		11,300
Utilities ($2,000 + $0.05q)		3,250
Facility rent ($3,200)		3,200
Insurance ($2,600)		2,600
Miscellaneous ($500 + $0.10q)		3,000
Total expense		75,850
Net operating income	$	36,650

In July, 26,000 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)		26,000
Revenue ($4.50q)	$	117,000
Expenses:
Raw materials ($2.10q)		54,600
Wages and salaries ($6,300+ $0.20q)		11,500
Utilities ($2,000 + $0.05q)		3,300
Facility rent ($3,200)		3,200
Insurance ($2,600)		2,600
Miscellaneous ($500 + $0.10q)		3,100
Total expense		78,300
Net operating income	$	38,700

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

Answer:

Flight Cafe Activity Variance For the Month Ended July 31
Particulars	Planning budget	Flexible budget	Activity variances
Meals	25000	26000
Total revenue ($4.50q)	112500	117000	4500 F
Less: Expenses:
Raw materials ($2.10q)	52500	54600	2100 U
Wages and Salaries (6300+$0.20q)	11300	11500	200 U
Utilities (2000+$0.05q)	3250	3300	50 U
Facility rent (3200)	3200	3200	0
Insurance (2600)	2600	2600	0
Miscellaneous (500+0.10q)	3000	3100	100 U
Total expenses	75850	78300	2450 U
Net operating Income	36650	38700	2050 F