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:

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,700 plus $32 per job, and the actual mobile lab operating expenses for February were $8,060. The company expected to work 110 jobs in February, but actually worked 116 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.)

Fixed Component
per Month Variable
Component per Job Actual Total
for February Revenue $ 277 $ 27,720 Technician wages $ 8,300 $ 8,150 Mobile lab operating expenses $ 4,700 $ 32 $ 8,060 Office expenses $ 2,200 $ 4 $ 2,490 Advertising expenses $ 1,580 $ 1,650 Insurance $ 2,860 $ 2,860 Miscellaneous expenses $ 940 $ 1 $ 355

Explanation / Answer

Flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February is as shown below:

AirQual Test Corporation Flexible Budget Performance Report For the month ended February 28 Particulars Actual Results Revenue and spending variances Flexible Budget Activity variances Planning Budget Actual-Flexible Planning-Flexible Jobs = q $116 116 110 Revenue (277 q) 27,720 ($4,412) U 32,132 -1,662 F 30,470 Expenses: Technician wages 8,150 ($150) F 8,300 0 None 8,300 Mobile lab operating expenses (4,700+32q) 8,060 ($352) F 8,412 -192 U 8,220 Office expense (2,200+4q) 2,490 ($174) F 2,664 -24 U 2,640 Advertising expenses 1,650 $70 U 1,580 0 None 1,580 Insurance 2,860 $0 None 2,860 0 None 2,860 Miscellaneous expenses (940+1q) $355 ($701) F 1,056 -6 U 1,050 Total expense 23,565 ($1,307) F 24,872 -222 U 24,650 Net Operating Income 4,155 ($3,105) U 7,260 -1,440 F 5,820

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