Question

2.

Flight Café prepares in-flight meals for airlines in its kitchen located next to a local airport. The company’s planning budget for July appears below:

Flight Café
Planning Budget
For the Month Ended July 31
Budgeted meals (q)		24,000
Revenue ($4.10q)	$	98,400
Expenses:
Raw materials ($2.10q)		50,400
Wages and salaries ($6,500 + $0.20q)		11,300
Utilities ($1,900 + $0.05q)		3,100
Facility rent ($3,900)		3,900
Insurance ($2,800)		2,800
Miscellaneous ($700 + $0.10q)		3,100
Total expense		74,600
Net operating income	$	23,800

In July, 25,000 meals were actually served. The company’s flexible budget for this level of activity appears below:

Flight Café
Flexible Budget
For the Month Ended July 31
Budgeted meals (q)		25,000
Revenue ($4.10q)	$	102,500
Expenses:
Raw materials ($2.10q)		52,500
Wages and salaries ($6,500+ $0.20q)		11,500
Utilities ($1,900 + $0.05q)		3,150
Facility rent ($3,900)		3,900
Insurance ($2,800)		2,800
Miscellaneous ($700 + $0.10q)		3,200
Total expense		77,050
Net operating income	$	25,450

Required:

1. Calculate the company’s activity variances for July. (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.)

Answer 1

• Requirement 1

Activity Variance = Difference between Flexible Budget and Static Planned budget

	Flexible Budget	Activity variance		Planning Static Budget
No. of meals	25,000			24,000
	[C = Fixed + (Var x Actual units)]	[D = Difference between C & E]		[E= Fixed + (Var x Planned units)]
Revenues	$102,500	$4,100	F	$98,400
Expenses:
Raw materials	$52,500	$2,100	U	$50,400
Wages & Salaries	$11,500	$200	U	$11,300
Utilities	$3,150	$50	U	$3,100
Facility Rent	$3,900	$0	None	$3,900
Insurance	$2,800	$0	None	$2,800
Miscellaneous	$3,200	$100	U	$3,100
Total Expenses	$77,050	$2,450	U	$74,600
Net Operating Income	$25,450	$1,650	F	$23,800