Reference no: EM132489980
Tip Top Flight School offers flying lessons at a small municipal airport. The school's owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. A recent variance report appears below:
- Tip Top Flight School Variance Report For the Month Ended July 31
Actual Results Planning Budget Variances
Lessons .............................. 155 150
Revenue......................... .$33,900 $33,000 $900 F
Expenses:
Instructor wages.....................9,870 9,750 120 U
Aircraft depreciation .............5,890 5,700 190 U
Fuel........................................2,750 2,250 500 U
Maintenance...........................2,450 2,330 120 U
Ground facility expenses........1,540 1,550 10 F
Administration................... .....3,320 3,390 70 F
Total expense ..................... 25,820 24,970 85 U
Net operating income ........$ 8,080 $ 8,030 $ 50 F
After several months of using such variance reports, the owner has become frustrated. For example, she is quite confident that instructor wages were very tightly controlled in July, but the report shows an unfavorable variance.
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
Required:
Question 1. Should the owner feel frustrated with the variance reports? Explain.
Question 2. Formulate a flexible budget performance report for the school for July.
Question 3. Evaluate the school's performance for July.