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 Tip Top Flight School Variance Report For the Month Ended July 31 Planning Results Budget Variances Lessons 200 195 $ 49,810 48,750 $1,060 F Revenue Expenses: Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration 13,815 13,650 165 U 7,800 200 U 3,120660 U 3,185 165 U 90 F 3,695 120 F 70 33,790 980 U $ 15,040$ 14,960 $ 80 F 8,000 3,780 3,350 2,250 3,575 2,340 Total expense 347703080 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 $250q $70q $40q $16q $650 $13q $1,950+$2q $3,500$1

Explanation / Answer

Actual Revenue and spending variances Flexible budget Activity variances Planning budget Lessons 200 200 195 Revenue 49810 190 U 50000 1250 F 48750 Expenses: Instructor wages 13815 185 F 14000 350 U 13650 Aircraft depreciation 8000 0 None 8000 200 U 7800 Fuel 3780 580 U 3200 80 U 3120 Maintenance 3350 100 U 3250 65 U 3185 Groudn facility expenses 2250 100 F 2350 10 U 2340 Administration 3575 125 F 3700 5 U 3695 Total expenses 34770 270 U 34500 710 U 33790 Net operating income 15040 460 U 15500 540 F 14960

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