TipTop Flight School offers flying lessons at a small municipal airport. The sch

Question

TipTop Flight School offers flying lessons at a small municipal airport. The school’s owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. A recent variance report appears below:

  

  

After several months of using such variance reports, the owner has become frustrated. For example, she is quite confident that instructor wages were very tightly controlled in July, but the report shows an unfavorable variance.

  

The planning budget was developed using the following formulas, where q is the number of lessons sold:

  

  

     

TipTop Flight School offers flying lessons at a small municipal airport. The school’s owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. A recent variance report appears below:

TipTop Flight School Flexible Budget Performance Report For the Month Ended July 31 Actual Revenue and Spending Flexible Variances Activity Variances Results Budget Lessons Revenue Expenses: Instructor wages Fuel Ground facility expenses Total expense Net operating income

Explanation / Answer

TipTop Flight School Flexible Budget Performance Re For the Month Ended July 31 Variance Actual Results Flexible Budget   Lessons 195      195       Revenue 39920 39975 55 U   Expenses:      Instructor wages 11950 12090 140 F      Aircraft depreciation 7605 7605 0 None      Fuel 4060 3705 355 U      Maintenance 3420 3370 50 U      Ground facility expenses 1935 2010 75 F      Administration 4330 4395 65 F   Total expense 33300 33175 125 U `   Net operating income 6620 6800 180 U Working Notes Cost Formulas q = 195 Revenue= 205 q                    = 205 * 195                    = 39975 Instructor Wages = 62q = 62 *195                                     = 12090 Aircraft depriciation = 39q                                           = 39 *195                                           = 7605 Fuel = 19q = 19 *195 = 3705 Maintenance = 640 + 14q                             = 640 + 14*195                             = 3370 Ground facility expenses = 1620 + 2q                                                     = 1620 + 2*195                                                     = 1620 + 390                                                      = 2010 Administration = 4200 + 1q                                 = 4200 + 1*195                                 = 4395

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