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

Question

TipTop Flight School offers fiying 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 165 Planning Budget 160 Variances Lessons Revenue Expenses $ 35,400 $ 34,400 1,000 F Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration 10,250 6,435 3,520 2,690 2,500 4,240 10,080 6,240 3,040 2,570 2,580 4,340 170 U 195 U 480 U 120 U 80 F 100 F 785 U $ 5,550 215 F Total expense Net operating income $5,765 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 $215q $63q $39q $ 650 + $12q $1,620 $6q $4,180 $1q

Explanation / Answer

Actual Revenue and spending variances Flexible budget Activity varances Planning budget Lessons 165 165 160 Revenue 35400 75 U 35475 1075 F 34400 Expenses: Instructor wages 10250 145 F 10395 315 U 10080 Aircraft depreciation 6435 0 None 6435 195 U 6240 Fuel 3520 385 U 3135 95 U 3040 Maintenance 2690 60 U 2630 60 U 2570 Ground facility expenses 2500 110 F 2610 30 U 2580 Administration 4240 105 F 4345 5 U 4340 Total expense 29635 85 U 29550 700 U 28850 Net operating income 5765 160 U 5925 375 F 5550

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