AirQual Test Corporation provides on-site air quality testing services. The comp

Question

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February: Variable Fixed Component Component per Actual Total Job $276 for February $27,610 $8,150 $ 8,050 $2,370 $1,650 $2,850 per Month Revenue Technician wages Mobile lab operating expenses Office expenses Advertising expenses insurance Miscellaneous expenses $8,300 $ 4,800 2,300 $1,580 s 2,850 $ 970 s 31 495 The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,800 plus $31 per job, and the actual mobile lab operating expenses for February were $8,050. The company expected to work 110 jobs in February, but actually worked 114 jobs Required: Prepare a flexible budget performance report showing AirQual Test Corporation's revenue and spending variances and activity variances for February. (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.)

Explanation / Answer

Solution;

AirQual Test Corporation

Flexible Budget Performance Report

For the Month Ended February 28

Actual Result

Revenue and Spending Variance

Flexible Budget

Activity Variance

Planning Budget

Jobs (q)

114

114

110

Revenue ($276q)

$27,610

$0

N

$27,610

$2,750

U

$30,360

Expenses:

Technician Wages (8300 fixed)

$8,150

$0

N

$8,150

$0

N

$8,300

Mobile lab operating expenses ($31*q + $4,800)

$8,050

$284

F

$8,334

$124

U

$8,210

Office expenses ($2*q + 2300)

$2,370

$158

F

$2,528

$8

U

$2,520

Advertising expenses (1580 fixed)

$1,650

$70

U

$1,580

$0

N

$1,580

Insurance (2850 fixed)

$2,850

$0

N

$2,850

$0

N

$2,850

Misc expenses ($2*q + $970)

$495

$703

F

$1,198

$8

U

$1,190

Total expense

$23,565

$1,075

F

$24,640

$10

U

$24,650

Net Operating Income

$4,045

-$1,075

U

$2,970

$2,740

U

$5,710

Flexible Budget is a budget prepared on the basis of actual activity level achieved but at standard price.

The difference, between actual and flexible budget is called Revenue and Spending Variance.

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AirQual Test Corporation

Flexible Budget Performance Report

For the Month Ended February 28

Actual Result

Revenue and Spending Variance

Flexible Budget

Activity Variance

Planning Budget

Jobs (q)

114

114

110

Revenue ($276q)

$27,610

$0

N

$27,610

$2,750

U

$30,360

Expenses:

Technician Wages (8300 fixed)

$8,150

$0

N

$8,150

$0

N

$8,300

Mobile lab operating expenses ($31*q + $4,800)

$8,050

$284

F

$8,334

$124

U

$8,210

Office expenses ($2*q + 2300)

$2,370

$158

F

$2,528

$8

U

$2,520

Advertising expenses (1580 fixed)

$1,650

$70

U

$1,580

$0

N

$1,580

Insurance (2850 fixed)

$2,850

$0

N

$2,850

$0

N

$2,850

Misc expenses ($2*q + $970)

$495

$703

F

$1,198

$8

U

$1,190

Total expense

$23,565

$1,075

F

$24,640

$10

U

$24,650

Net Operating Income

$4,045

-$1,075

U

$2,970

$2,740

U

$5,710

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