Flight Café prepares in-flight meals for airlines in its kitchen located next to

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) 28,000 Revenue ($4.00q) $ 112,000 Expenses: Raw materials ($1.90q) 53,200 Wages and salaries ($6,400 + $0.20q) 12,000 Utilities ($1,900 + $0.05q) 3,300 Facility rent ($3,200) 3,200 Insurance ($2,100) 2,100 Miscellaneous ($400 + $0.10q) 3,200 Total expense 77,000 Net operating income $ 35,000 In July, 29,000 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) 29,000 Revenue ($4.00q) $ 116,000 Expenses: Raw materials ($1.90q) 55,100 Wages and salaries ($6,400+ $0.20q) 12,200 Utilities ($1,900 + $0.05q) 3,350 Facility rent ($3,200) 3,200 Insurance ($2,100) 2,100 Miscellaneous ($400 + $0.10q) 3,300 Total expense 79,250 Net operating income $ 36,750 Required: 1. Calculate the company’s activity variances for July.

Explanation / Answer

Planning budget Flexible budget Activity variances Meals 28000 29000 Revenue 112000 116000 4000 F Expenses: Raw materials 53200 55100 1900 U Wages and salaries 12000 12200 200 U Utilities 3300 3350 50 U Facility rent 3200 3200 0 None Insurance 2100 2100 0 None Miscellaneous 3200 3300 100 U Total expense 77000 79250 2250 U Net operating income 35000 36750 1750 F

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