Question

Flight Café prepares in-flight meals for airlines in its kitchen located next to a local airport....

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) 29,000
Revenue ($4.40q) $ 127,600
Expenses:
Raw materials ($1.80q) 52,200
Wages and salaries ($6,200 + $0.20q) 12,000
Utilities ($2,100 + $0.05q) 3,550
Facility rent ($3,900) 3,900
Insurance ($2,400) 2,400
Miscellaneous ($500 + $0.10q) 3,400
Total expense 77,450
Net operating income $ 50,150

In July, 30,000 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) 30,000
Revenue ($4.40q) $ 132,000
Expenses:
Raw materials ($1.80q) 54,000
Wages and salaries ($6,200+ $0.20q) 12,200
Utilities ($2,100 + $0.05q) 3,600
Facility rent ($3,900) 3,900
Insurance ($2,400) 2,400
Miscellaneous ($500 + $0.10q) 3,500
Total expense 79,600
Net operating income $ 52,400

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.)

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Homework Answers

Answer #1

Requirement 1:

Activity Variances
For the month of July
Flexible budget Activity Variance Planning Budget
Revenue $132,000 $4,400 Favorable $127,600
Expenses:
Raw materials $54,000 $1,800 Unfavorable $52,200
Wages and salaries $12,200 $200 Unfavorable $12,000
Utilities $3,600 $50 Unfavorable $3,550
Facility rent $3,900 $0 None $3,900
Insurance $2,400 $0 None $2,400
Miscellaneous $3,500 $100 Unfavorable $3,400
Total expense $79,600 $2,150 Unfavorable $77,450
Net operating income $52,400 $2,250 Favorable $50,150

Explanation:

  • For revenues and net operating income, If Flexible budget is more than Planning budget then it is favorable. Otherwise, Unfavorable.
  • For expenses, If Planning budget is more than Flexible budget then it is favorable. Otherwise, Unfavorable
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