PROBLEM 10-21 Critique a Report; Prepare a Performance Report ILO 10-1, LO 10-4,

Question

PROBLEM 10-21 Critique a Report; Prepare a Performance Report ILO 10-1, LO 10-4, LO 10-6 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 Variance Report For the Month Ended July 31 Actual Planning Results Budget Variances Lessons 155 150 $33,900 $33,000 $900 F Expenses: 9,870 9,750 5,890 5,700 2,750 2.250 2,330 1,540 1,550 3,320 3,390 ..25,820 24,970 120 U 190 U 500 U 120 U 10 F 70 F 850 U Alrcraft depreciation Fuel. 2,450 Ground facility expenses. Total expense Net operating income$ 8,080 $ 8,030 50F

Explanation / Answer

Answer 1. The variance report should not be used to evaluate the performance of TipTop flight School. Because in the palnning budget, if had budgeted for 150 lessons, but actually it is 155 lessons are given. So, the actual revenues and expenses are actually more than planned revenue and expenses, so comparison cannot be done on the above basis. Answer 2. Tip Top Flight School Flexible Budget Performance Report For the Month ended July 31 Actual Results Revenue & Spending Variance Flexible Budget Activity Variance Planning Budget Lessons                                   155                                  155                             150 Revenue                             33,900                        200 U                            34,100                   1,100 F                       33,000 Expenses: Instructor Wages                               9,870                        205 F                            10,075                       325 U                         9,750 $65 X 155 Aircraft Depreciation                               5,890                           -   U                               5,890                       190 U                         5,700 $38 X 155 Fuel                               2,750                        425 U                               2,325                         75 U                         2,250 $15 X 155 Maintenance                               2,450                          60 U                               2,390                         60 U                         2,330 $530 + ($12 X 155) Ground Facility Expenses                               1,540                          20 F                               1,560                         10 U                         1,550 $1,250 + ($2 X 155) Administration                               3,320                          75 F                               3,395                           5 U                         3,390 $3,240 + ($1 X 155) Total Expenses                             25,820                        185 F                            25,635                       665 U                       24,970 Net Operating Income                               8,080                        385 U                               8,465                       435 F                         8,030 Answer 3. The overall Activity variance of TipTop School is $435 (F), but the Net Operating Income is only increased by $385. Mostly spending variances are favourable, except the Fuel Expense (425 (U)) and Maintenance Expense ($60 (U)). Fuel Variance may be negative due to increase in fuel prices, which is beyond the control of school. So, the cost is under control.

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