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Problem - 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
Pending Budget
Actual Results
Variances
Lessons
150
155
Revenue
$33,000
$33,900
$900 F
Expenses:
Instructor Wage
9,750
9,870
120 U
Aircraft Depreciation
5,700
5,890
190 U
Fuel
2,250
2,750
500 U
Maintenance
2,330
2,450
Ground Facility Expenses
1,550
1,540
10 F
Administration
3,390
3,320
70 F
Total Expense
24,970
25,820
850 U
Net Operating Income
$8,030
$8,080
$ 50 F
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
$220q
Instructor Wages
$65q
$38q
$15q
$530 + $12q
$1,250 + $2q
$3,240 + $1q
Required:
Should the owner feel frustrated with the variance reports? Explain.
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