of using such variance reports, the owner has become frustrated. For exam- ab va
ID: 382804 • Letter: O
Question
of using such variance reports, the owner has become frustrated. For exam- ab variance. The planning ont that instructor wages were very tightly controlled in July, but the report budget was developed using the following formulas, where q is the number of she is quite confide Esvons sold:gbudget icece Cost Formulas Revenue Instructor wages $220q $65q $38q $15q $530+ $120q Fuel Maintenance Ground facility expenses ...$1,250+ $2q Administration $3,240+ $1q Required: 1. Should the owner feel frustrated with the variance reports? Explain. 2 Prepare a flexible budget performance report for the school for July 3. Evaluate the school's performance for lulyExplanation / Answer
1. Total profit = Revenue - Expenses
= 220q-(133q+5020)
= 87q-5020.
For no profit no loss condition, q= 5020 / 87 = 57.7
The profitability of the venture will depend on the value of q ( The number of lessons sold.). It will be profitable if q is more than $57.7. The owner needs to be frustrated if the q value is less than 57.7, i,e, sales figure is below this value.
2. The salient features of report are given below.
a. Each lesson is priced at $220.
b. Major portion of expenses goes towards instructor's wages which is $65 per lesson.
c.Aircraft depreciation and fuel expenses account for $38 and $15 respectively.
d.Fixed charges for maintenance are $530, while variable charges are $12 per lesson sold.
e. Fixed charges for ground facility are $1250 while,variable charges are $2 per lesson sold.
f. Fixed charges for administration are $3240 while variable charges are $1 per lesson sold.
Ans 3: The profitability of school depends on the number of lessons sold, subject to a minimum of 58 lessons. Perhaps instructor's wages is the only head which can be controlled significantly. No other head of expense will make any noticeable difference, given the nature of expenses.
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