budgets on two measures of activity (i.e, cost drivers), namely guests and jeeps
ID: 2535784 • Letter: B
Question
budgets on two measures of activity (i.e, cost drivers), namely guests and jeeps. One vehicle used i one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following data in its budgeting: 4) H lottle Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its Variable element per guest $144 Variable Fixed element per month element per jeep So $0 SO $4,400 $1.600 Tour guide wages. Vehicle expenses $163 $0 $5 $70 S0 Administrative expenses $2 In February, the company budgeted for 342 guests and 146 jeeps. The company's income statement showing the actual results for the month appears below: Hottle Jeep Tours Income Statement For the Month Ended February 28 Actual guests Actual jeeps.. 367 149 . ...$52.058 Expenses Tour guide wages.24,277 16,555 2.374 43.206 Net operating income.$8.852 Vehicle expenses. Administrative expenses Total expense. Required: Prepare a flexible budget performance report showing both the company's activity variances and revenue and spending variances for February. Label each variance as favorable (F) or unfavorableExplanation / Answer
Ans. Hottle Jeep Tours Income Statement For the month Ended February 28 Actual results Rev. & Spend. Variance Flexible budget Activity variance Planning budget Guests 367 367 342 Jeeps 149 149 146 Revenue 52058 790 U 52848 3600 F 49248 Expenses: Total guide wages 24277 10 F 24287 489 U 23798 Vehicle expenses 16555 110 F 16665 335 U 16330 Administration expenses 2374 40 U 2334 50 U 2284 Total expenses 43206 80 F 43286 874 U 42412 Net operating income 8852 710 U 9562 2726 F 6836 *Calculation; Flexible budget Planning budget Guests 367 342 Jeeps 149 146 Revenue 367*144 342*144 Expenses: Total guide wages 163*149 163*146 Vehicle expenses 4400+(5*367) + (70*149) 4400+(5*342) + (70*146) Administration expenses 1600+(367*2) 1600+(342*2) Revenue & Spending variance = Actual results - Flexible budget. Activity variance = flexible budget - Planning budget. *Increase in Revenue & profit = Favorable. *Decrease in Revenue & profit = Unfavorable. *Increase in Expenses = Unfavorable. *Decrease in Expenses = Favorable. *Flexible budget is prepared on the basis of actual units.
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