TipTop Flight School offers flying lessons at a small municipal airport. The sch

Question

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 School Variance Report For the Month Ended July 31 Actual Planning Results Budget Variances Lessons 225 220 5 60,400 59,400 51,000 F Revenue Expenses: Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration 7,650 4,340 3,650 2,470 3,960 39,870 20,530 17,800 17,600 7,480 3,740 3,450 2,530 4,040 200 U 170 U 600 U 200 U 60 F 80 F 38,840 1,030 U 20,560 $ 30 F Total expense Net operating income 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 Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration $270g $80g $34g $17g $590 + $13g $1,650 + $4g $3,380 $3g

Explanation / Answer

Actual Revenue and spending variances Flexible budget Activity variances Planning budget Lessons 225 225 220 Revenue 60400 350 U 60750 1350 F 59400 Expenses: Instructor wages 17800 200 F 18000 400 U 17600 Aircraft depreciation 7650 0 None 7650 170 U 7480 Fuel 4340 515 U 3825 85 U 3740 Manitenance 3650 135 U 3515 65 U 3450 Ground facility expenses 2470 80 F 2550 20 U 2530 Administration 3960 95 F 4055 15 U 4040 Total expenses 39870 275 U 39595 755 U 38840 Net operating income 20530 625 U 21155 595 F 20560

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