TipTop 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: TipTop Flight SchoolVariance ReportFor the Month Ended July 31 Actual ResultsPlanning BudgetVariancesLessons155150 Revenue$ 36,920$ 36,000$ 920FExpenses: Instructor wages9,8709,750120UAircraft depreciation4,9604,800160UFuel2,4701,950520UMaintenance2,2802,160120UGround facility expenses1,6801,70020FAdministration3,4403,52080FTotal expense24,70023,880820UNet operating income$ 12,220$ 12,120$ 100F After several months of using these 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 FormulasRevenue$240qInstructor wages$65qAircraft depreciation$32qFuel$13qMaintenance$510 + $11qGround facility expenses$1,250 + $3qAdministration$3,220 + $2q Required:2. Complete the flexible budget performance report for the school 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.)

Solution: flexible budget performance report shows the Revenue and spending Variances and activity…

Answered: n attempting to evaluate performance…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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TipTop 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:

	Actual Results	Planning Budget	Variances
TipTop Flight School Variance Report For the Month Ended July 31
Lessons	155	150
Revenue	$ 36,920	$ 36,000	$ 920	F
Expenses:
Instructor wages	9,870	9,750	120	U
Aircraft depreciation	4,960	4,800	160	U
Fuel	2,470	1,950	520	U
Maintenance	2,280	2,160	120	U
Ground facility expenses	1,680	1,700	20	F
Administration	3,440	3,520	80	F
Total expense	24,700	23,880	820	U
Net operating income	$ 12,220	$ 12,120	$ 100	F

After several months of using these 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	$240q
Instructor wages	$65q
Aircraft depreciation	$32q
Fuel	$13q
Maintenance	$510 + $11q
Ground facility expenses	$1,250 + $3q
Administration	$3,220 + $2q

Required:

2. Complete the flexible budget performance report for the school 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.)

Definition Definition Measure used to estimate the difference between the budgeted and annual proportion for a specific accounting year. A favorable budget variance refers to positive variances or gains, while unfavorable or negative variances refer to a shortfall in the budget. A budget variance is indicative of the instances where the actual costs incurred are higher or lower than the estimated costs.

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