NEED QUESTION #2 ANSWERED: 1. Flexible Budget : Puget Sound Divers is a company
ID: 2724001 • Letter: N
Question
NEED QUESTION #2 ANSWERED:
1. Flexible Budget: Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below:
During May, the company’s activity was actually 105 diving-hours. Prepare a flexible budget for that level of activity.
2. Flexible Budget Performance Report: Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:
The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount. Required:
Prepare a flexible budget performance report for July.
Which of the variances should be of concern to management? Explain.
Explanation / Answer
The overall $336 unfavorable activity variance is due to activity falling below what had been planned for the month. The $1,710 unfavorable revenue variance is very large relative to the company’s net operating income and should be investigated. Was this due to discounts given or perhaps a lower average number of passengers per flight than usual? The $494 unfavorable spending variance for wages and salaries is also large and should be investigated. The other spending variances are relatively small, but are worth some management attention—particularly if they recur next month.
Workings
flexible budget performance report for July Activity Variance Revenue and Spending Variances Revenue 640 U 1710 U Expense 0 Wages And salaries 164 F 494 U Fuel 46 F 156 U Airport fees 76 F 124 F Aircraft depreciation 14 F 0 None Office expenses 4 F 174 U Total expense 304 F 700 U Net operating income 336 U 2410 URelated Questions
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