Question

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:

Vulcan Flyovers Operating Data For the Month Ended July 31

Actual Results Flexible Budget Planning Budget
Flights (q) 57 57 55
Revenue ($340.00q) $16,400 $19,380 $18,700
Expenses:
Wages and salaries ($3,600 + $87.00q) 8,525 8,559 8,385
Fuel ($34.00q) 2,100 1,938 1,870
Airport fees ($870 + $34.00q) 2,693 2,808 2,740
Aircraft depreciation ($9.00q) 513 513 495
Office expenses ($230 + $1.00q) 455 287 285
Total expense 14,286 14,105 13,775
Net operating income $2,114 $5,275 $4,925

The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.

Required:
Prepare a flexible budget performance report for July that includes revenue and spending variances and activity variances.

Answer 1

1. Revenue and Spending Variance

Revenue = (19,380 - 16,400) = 2980 U

Expenses

Wages & Salaries = 8,559 - 8,525 = 34 U

Fuel = 1,870 - 1,938 = 68 F

Airport Fees = 2,808 - 2,693 = 115 U

Aircraft Depreciation = 0 None

Office Expenses = 287 - 455 = 168 F

Total Expenses = 87 F

Net Operating Income = 5,275 - 2,114 = 3161 U

2. Activity Variances

Activity Variances are used to compare revenue and cost item between the planning budget and flexible budget of the company.

Revenue = 18,700 - 19,380 = 680 U

Expenses

Wages and salaries = 8,385 - 8,559 = 174 U

Fuel = 1,870 - 1,938 = 68 U

Airport fees = 2,740 - 2,808 = 68 U

Aircraft depreciation = 495 - 513 = 18 U

Office expenses = 285 - 287 = 2 U

Total expense = 330 U

Net operating income = 4,925 - 5,275 = 350 U