Chapter 9, Problem 4E

To determine

Flexible budget performance report: The statement which shows the performance of flexible budget by comparing with the actual results and the static budget is called a flexible budget performance report.

The Flexible budget performance report.

Answer to Problem 4E

Solution:

Vulcan Flyovers Flexible Budget Performance Report For the Month Ended July 31
	Actual Result	Flexible Budget Variance	Flexible Budget	Sales Volume Variance	Static Budget
Flights (q)	48		48		50
Revenue ($320.00q)	$13,650	$1,710 U	$15,360	$640 U	$16,000
Expenses:
Wages and salaries ($4,000+$82.00q)	$8,430	$494 U	$7,936	$164 F	$8,100
Fuel ($23.00q)	$1,260	$156 U	$1,104	$46 F	$1,150
Airport fees ($650+$38.00q)	$2,350	$124 F	$2,474	$76 F	$2,550
Aircraft depreciation ($7.00q)	$336	-	$336	$14 F	$350
Office expenses ($190+$2.00q)	$460	$174 U	$286	$4 F	$290
Total expense	$12,836	$700 U	$12,136	$304 F	$12,440
Net operating income	$814	$2,410 U	$3,224	$336 U	$3,560
Flights (q)	48	$1,710 U	48	$640 U	50
Revenue ($320.00q)	$13,650		$15,360		$16,000

Vulcan Flyovers Revenue and Spending Variance For the Month Ended July 31
	Actual Results	Flexible Budget	Variance Favorable/ (Unfavorable)
Flights (q)	48	48
Revenue ($320.00q)	$13,650	$15,360	$1,710 U
Expenses:
Wages and salaries ($4,000+$82.00q)	$8,430	$7,936	$494 U
Fuel ($23.00q)	$1,260	$1,104	$156 U
Airport fees ($650+$38.00q)	$2,350	$2,474	$124 F
Aircraft depreciation ($7.00q)	$336	$336	-
Office expenses ($190+$2.00q)	$460	$286	$174 U
Total expense	$12,836	$12,136	$700 U
Net operating income	$814	$3,224	$2,410 U

Vulcan Flyovers Activity Variance For the Month Ended July 31
	Flexible Budget	Planning Budget	Variance Favorable/ (Unfavorable)
Flights (q)	48	50
Revenue ($320.00q)	$15,360	$16,000	$640 U
Expenses:
Wages and salaries ($4,000+$82.00q)	$7,936	$8,100	$164 F
Fuel ($23.00q)	$1,104	$1,150	$46 F
Airport fees ($650+$38.00q)	$2,474	$2,550	$76 F
Aircraft depreciation ($7.00q)	$336	$350	$14 F
Office expenses ($190+$2.00q)	$286	$290	$4 F
Total expense	$12,136	$12,440	$304 F
Net operating income	$3,224	$3,560	$336 U

2) The revenue variance of the company should be the prime concerned of management as it has decreased both in planning budget and flexible budget compared to the actual results attain by the company.

Explanation of Solution

Variance is ascertained by the determining the difference between actual amounts and budgeted amounts. Assuming there is no change in the fixed expense, the variable expense and revenue of the company is computed based on the actual results of the company. A variance which increases the operating income is a favorable variance and variance which decreases the operating income is an unfavorable variance. A favorable variance is symbolized by (F) and unfavorable variance is symbolized by (U).

Given:

Vulcan Flyovers Operating Data For the Month Ended July 31
	Actual Results	Flexible Budget	Planning Budget
Flights (q)	48	48	50
Revenue ($320.00q)	$13,650	$15,360	$16,000
Expenses:
Wages and salaries ($4,000+$82.00q)	$8,430	$7,936	$8,100
Fuel ($23.00q)	$1,260	$1,104	$1,150
Airport fees ($650+$38.00q)	$2,350	$2,474	$2,550
Aircraft depreciation ($7.00q)	$336	$336	$350
Office expenses ($190+$2.00q)	$460	$286	$290
Total expense	$12,836	$12,136	$12,440
Net operating income	$814	$3,224	$3,560

Conclusion

The total unfavorable variance in net operating income of Vulcan Flyovers is $336 which decrease the net operating income compared to the flexible budget. The Vulcan Flyovers has unfavorable variance of $1,710 in revenue and $700 in spending. The main objective behind finding out the variance is to determine the gap between the actual performance and budgeted performance. The variance is taken into consideration while preparing budget of preceding years