Actual Planning Results Budget Variances
# of Lessons 155 150

Revenue 33,900 33,000 900 F
Expenses:
Instructor Wages 9,870 9,750 120 U
Aircraft Depreciation 5,890 5,700 190 U
Fuel 2,750 2,250 500 U
Maintenance 2,450 2,330 120 U
Ground Facility Expenses 1,540 1,550 10 F
Administration 3,320 3,390 70 F
Total Expenses 25,820 24,970 850 U
Net Operating Income 8,080 8,030 50 F

The planning budget was developed using the following formulas where q is the number of lessons sold.

Cost Formulas
Revenue $220q
Instructor Wages $65q
Aircraft Depreciation $38q
Fuel $15q
Maintenance $530 + $12q
Ground Facility Expenses $1,250 + $2q
Administration $3,240 + $1q

1) Should the owner feel frustrated with the variance reports? Explain. (3 Marks)
2) Using the format provided below, prepare a flexible budget performance report for the school for July. (27 Marks)
3) Evaluate the school's performance for July. (6 Marks)

1. Should the owner feel frustrated with the variance reports? Explain.      

Yes,  the owner should  feel frustrated with the variance reports .The variance report should not be used to evaluate how well costs were controlled. In July, the planning budget was based on 150 lessons, but the actual results are for 155 lessons—an increase of more than 3% over budget. Consequently, the actual revenues and many of the actual costs should have been different from what was budgeted at the beginning of the period. For example, instructor wages, a variable cost, should have increased by more than 3% because of the increase in activity, but the variance report assumes that they should not have increased at all. This results in a spurious unfavorable variance for instructor wages. Direct comparisons of budgeted to actual costs are valid only if the costs are fixed.      

2. Prepare a flexible budget performance report for the school for July.    

NB:Please see the attached piece

3)      

The overall activity variance for net operating income was $435 F (favorable). That means that as a consequence of the increase in activity from 150 lessons to 155 lessons, the net operating income should have been up $435 over budget. However, it wasn’t. The budgeted net operating income was $8,030 and the actual net operating income was $8,080, so the profit was up by only $50—not $435 as it should have been. The fuel costs were much higher than expected. The spending variance for fuel was $425  (unfavorable) and may have been due to an increase in the price of fuel that is beyond the manager’s control. Most of the other spending variances were favorable, so with the exception of this item, costs seem to have been adequately controlled. In addition, the unfavorable revenue variance of $200 indicates that revenue was slightly less than they should have been

32 2. Prepare a flexible budget performance report for the school for July. 34 Fixed component Variable component 220 65 35 R

Step-by-step explanation:

d) 48

step-by-step explanation:

16,32,48,64,80,96,112,128,144,160,176,192,208,224,240,256,272,288,304,320,336