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| Tiptop Flight School | |||
| Variance Report | |||
| For the Month Ended July 31 |
| Actual Results | Planning Budget | Variances | |
|---|---|---|---|
| Lessons | 155 | 150 | |
| Revenue | $33,900 | $33,000 | $900 F |
| Expenses: | |||
| Instructor wages | 9,870 | 9,750 | 120 U |
| Aircraft depreciation | 5,890 | 5,700 | 190 U |
| Fuel | 2,750 | 2,250 | 500 U |
| Maintenance | 2,450 | 2,330 | 120 U |
| Ground facility expenses | 1,540 | 1,550 | (10) F |
| Administration | 3,320 | 3,390 | (70) F |
| Total expense | 25,820 | 24,970 | 850 U |
| Net operating income | $8,080 | $8,030 | $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 | $220 q |
| Instructor wages | $65 q |
| Aircraft depreciation | $38 q |
| Fuel | $15 q |
| Maintenance | $530 + $12 q |
| Ground facility expenses | $1,250 + $2 q |
| Administration | $3,240 + $1 q |
Required:
1. Should the owner feel frustrated with the variance reports? Explain.
2. Prepare a flexible budget performance report for the school for July.
3. Evaluate the school’s performance for July.
