AirQual Test Corporation provides on-site air quality testing services. The comp

Question

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February:

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $5,000 plus $33 per job, and the actual mobile lab operating expenses for February were $8,800. The company expected to work 120 jobs in February, but actually worked 128 jobs.

Required:

Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (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.)

Fixed Component
per Month Variable
Component per Job Actual Total
for February Revenue $ 280 $ 30,850 Technician wages $ 8,100 $ 7,950 Mobile lab operating expenses $ 5,000 $ 33 $ 8,800 Office expenses $ 2,300 $ 3 $ 2,510 Advertising expenses $ 1,580 $ 1,650 Insurance $ 2,860 $ 2,860 Miscellaneous expenses $ 980 $ 1 $ 405

Explanation / Answer

Flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February is as prepared below:

AirQual Test Corporation Flexible Budget Performance Report For the month ended February 28 Particulars Actual Results Revenue and spending variances Flexible Budget Activity variances Planning Budget Actual-Flexible Planning-Flexible Jobs = q 128 128 120 Revenue (280 q) 30,850 ($4,990) U 35,840 -2,240 F 33,600 Expenses: Technician wages 7,950 ($150) F 8,100 0 None 8,100 Mobile lab operating expenses (5,000+33q) 8,800 ($424) F 9,224 -264 U 8,960 Office expense (2,300+3q) 2,510 ($174) F 2,684 -4 U 2,680 Advertising expenses 1,650 $70 U 1,580 0 None 1,580 Insurance 2,860 $0 None 2,860 0 None 2,860 Miscellaneous expenses (980+1q) $405 ($703) F 1,108 -8 U 1,100 Total expense 24,175 ($1,381) F 25,556 -276 U 25,280 Net Operating Income 6,675 ($3,609) U 10,284 -1,964 F 8,320

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