Question

Chapter 9 next to a local to pole The actual real Actual por 18,000 EXERCISE 9-2 Activity Variances LS-2 Flight Café prepares in-flight meals for airlines in its kitchen located company's planning budget for July appears below: Flight Cafe Planning Budget For the Month Ended 31 Budgeted meals ......... Revenue ($4.500 Expenses Raw materials ($2.400) ..... Wages and salaries ($5,200 + $0.30) ....... . Utilities ($2.400 + $0.05)..... Facility rent ($4.300 ......... Insurance $2,3001 Miscellaneous ($680 + $0.10 .... Total expense Net operating income $81000 Expenses 43,200 10.600 3,300 Oyster Wages Shipping Utilises Other Total expe 2.480 66.180 $14320 In July, 17.800 meals were actually served. The company's flexible budget for this level of appears below: Required Calculate the company's EXERCISE 9-4 Prepare a Vulcan Flyovers offers that explosively crupled 17.800 $80.100 Flight Cafe Flexible Budget For the Month Ended July 31 Budgeted meals .......... Revenue ($4.50 Expenses Raw materials ($2.40) Wages and salaries ($5.200 $0.300) Utilities $2.400 + $0.051 Facility rent ($4,300) Insurance ($2,3001 Miscellaneous (5680 + $0.10) Total expense Net operating income 42.720 3.290 4,300 2300 2.460 65,610 $14.490 Revenue $320.00 Expenses Wages and salaries Fuel ($23.00) Airport fees $650+ Aircraft depreciation Omice expenses (515 Total expense.... Net operating income Required: 1. 2 Calculate the company's activity variances for July. (Hint: Refer to Exhibit 9-6) Which of the activity variances should be of concern to management? Explain EXERCISE 9-3 Revenue and Spending Variances L09-3 Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company sold 8.000 pounds of oysters in August. The company's flexible budget for August company hand The company measures overflights or hire an Required 1. Using Exhibit 9-3 includes revenge 2. Which of the varian Quilcene Oysteria Flexible Budget For the Month Ended August 31 Actual pounds (a) .... Revenue ($4.000)... Expenses Packing supplies ($0.500) .. Oyster bed maintenance ($3.2001 8.000 $ 32.000 EXERCISE 9-5 Prepare Alyeski Tourses Management has identi that it uses in its budget Cruises that it may supplies Can be accommodadon 4.000

Answer 1

ANSWER

As per the given question,

Activity Variance is used to calculate the variances actual level of activity and the planned level of activity in the beginning. While measuring the activity variance there is a need to be cautious. Revenue Variance is favorable (unfavorable) when revenue is greater (lesser) in flexible budget than the fixed budget. Expense Variance is favorable (unfavorable) when expense is lesser (greater) in flexible budget than the planned budget.

Calculation of Activity Variance: The following shows the variances in the planning budget and flexible budget: Home Page Layout Formula CHA . IU O -A ==> ES Test & Center - Cerea $-4 . L Cantina Format u B Pule . Cell er Delete Format . So Activity Variances For the Mouth Eaded July 31 Fee Paing Budget Budget Activity Varice 7 Budgeted Mease) 15000 (5) 81000 (5) 80100 9 Reve (5) 900) U ($4.500 42720 10540 43200 10600 6 0 F 11 Expenses 12 Raw Mate ($2.40) 13 W S 55200+0.300) 14 (52400-50.05) is Facility Rent: 54300) 16 loe/52300) 17 Misc 5630-30.10 2300 2460 2300 2480 20 F 19 Totalespese 20 Net Operating Income 1490 14820 000) AM

The following shows the calculation: 72130-9-21. Michael fx in t Deine Fame Create from Selection Decodes Show Formula De Cheng 00 mowerow - Estate Formule who L un Recent Pancetogor Tel De La Ma a ne, calculate Sheet Activity Variances For the Meath Toded Jay 11 Pening Badges 7 Budered Mease) 17500 18000 Revo (54.50) 1780045 1800045 -B9.09 11 Expenses 12 Raw Mate ($2.400) 13 W & Sales(55200-030) 14 52400-30.05) 15 Facility Rent/54300) 16 Ince/S2300) 17 Mic 5 650-50.100) -2.4°17800 -2.4.18000 CI2-B12 -5200-0317800 5200+0.3.18000 C13-B13 -2400+0.05 17500 2400+0.05*15000 C14-B14 CIS-BIS C16-B16 60+0.1"178006800 115000 C1-B17 SUMBI2RIDESUMCI2C17 19 Total expense 20 Net Operating Income -SUMDI2017) -B20-30 U= unfavorable balance F= favorable balance

Revenue Variance is favorable (unfavorable) when revenue is greater (lesser) in flexible budget than the fixed budget. Expense Variance is favorable (unfavorable) when expense is lesser (greater) in flexible budget than the planned budget.

Here, Revenue falls from $81,000 to $80, 100 on account of fall in budgeted meals. This made the activity variance unfavorable for $900.

Raw Material expense, fall from $43,200 in planned budget to $42,720 in flexible budget thereby making the activity favorable by $480. Facility rent and insurance are fixed expense and therefore does not change in flexible budget.

Fall in revenue making the activity variance unfavorable by $900 and the fall in expense made the activity variance favorable by $570.

The net effect making the Net Operating Income Unfavorable by $330($900 - $570)

Since 17,800 meals were actually served compared to 18,000 meals in planned budget, the revenue has gone unfavorable. The expenses are favorable due to the reason that activity level has gone down. Due to the reason of activity level going down, the net revenue has also gone unfavorable. Since the revenue and net operating have shown unfavorable due to the reason that activity level has gone down, it should not be of much concern to the management. The results should turn favorable when the actual activity level will equal the planned activity level or will go higher.

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