Prepare a flexible budget performance report for the school

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Reference no: EM131803910

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

120 U

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

Revenue

$220q

Instructor Wages

$65q

Aircraft Depreciation

$38q

Fuel

$15q

Maintenance

$530 + $12q

Ground Facility Expenses

$1,250 + $2q

Administration

$3,240 + $1q

Required:

Should the owner feel frustrated with the variance reports? Explain.

Prepare a flexible budget performance report for the school for July. Evaluate the school's performance for July.

Reference no: EM131803910

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