Question

Flight Café prepares in-flight meals for airlines and its planning budget for July appears below:

Flight Café
Planning Budget
For the Month Ended July 31
Budgeted meals (q) 18,000
Revenue ($4.50q) $ 81,000
Expenses:
Raw materials ($2.40q) 43,200
Wages and salaries ($5,200 + $0.30q) 10,600
Utilities ($2,400 + $0.05q) 3,300
Facility rent ($4,300) 4,300
Insurance ($2,300) 2,300
Miscellaneous ($680 + $0.10q) 2,480
Total expenses 66,180
Net operating income $ 14,820
In July, 17,800 meals were actually served. The company’s flexible budget for this level of activity appears below:

Flight Café
Flexible Budget
For the Month Ended July 31
Budgeted meals (q) 17,800
Revenue ($4.50q) $ 80,100
Expenses:
Raw materials ($2.40q) 42,720
Wages and salaries ($5,200 + $0.30q) 10,540
Utilities ($2,400 + $0.05q) 3,290
Facility rent ($4,300) 4,300
Insurance ($2,300) 2,300
Miscellaneous ($680 + $0.10q) 2,460
Total expenses 65,610
Net operating income $ 14,490
Required:
1. Calculate the company’s activity variances for July.

Note: 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.

Answer 1

To calculate the activity variances for July, we will compare the flexible budget amounts with the original planning budget amounts based on the actual output of 17,800 meals. We will then determine the variances for revenue and each expense category.

### Flight Café
### Activity Variance Calculation
**1. Revenue Variance:**
- **Flexible Budget Revenue:** $80,100
- **Planning Budget Revenue:** $81,000
- **Variance:** $80,100 - $81,000 = **-$900** (Unfavorable)

**2. Raw Materials Variance:**
- **Flexible Budget Raw Materials:** $42,720
- **Planning Budget Raw Materials:** $43,200
- **Variance:** $42,720 - $43,200 = **-$480** (Unfavorable)

**3. Wages and Salaries Variance:**
- **Flexible Budget Wages and Salaries:** $10,540
- **Planning Budget Wages and Salaries:** $10,600
- **Variance:** $10,540 - $10,600 = **-$60** (Unfavorable)

**4. Utilities Variance:**
- **Flexible Budget Utilities:** $3,290
- **Planning Budget Utilities:** $3,300
- **Variance:** $3,290 - $3,300 = **-$10** (Unfavorable)

**5. Facility Rent Variance:**
- **Flexible Budget Facility Rent:** $4,300
- **Planning Budget Facility Rent:** $4,300
- **Variance:** $4,300 - $4,300 = **$0** (None)

**6. Insurance Variance:**
- **Flexible Budget Insurance:** $2,300
- **Planning Budget Insurance:** $2,300
- **Variance:** $2,300 - $2,300 = **$0** (None)

**7. Miscellaneous Variance:**
- **Flexible Budget Miscellaneous:** $2,460
- **Planning Budget Miscellaneous:** $2,480
- **Variance:** $2,460 - $2,480 = **-$20** (Unfavorable)

### Summary of Activity Variances:
- **Revenue Variance:** $900 U
- **Raw Materials Variance:** $480 U
- **Wages and Salaries Variance:** $60 U
- **Utilities Variance:** $10 U
- **Facility Rent Variance:** $0
- **Insurance Variance:** $0
- **Miscellaneous Variance:** $20 U

Now let's summarize the overall activity variances:

- **Total Revenue Variance:** $900 U
- **Total Expense Variance:**
- Raw Materials: $480 U
- Wages and Salaries: $60 U
- Utilities: $10 U
- Facility Rent: $0
- Insurance: $0
- Miscellaneous: $20 U
Total expenses: 480 + 60 + 10 + 0 + 0 + 20 = **$570 U**

### Net Operating Income Variance:
- Net Operating Income from Planning Budget: $14,820
- Net Operating Income from Flexible Budget: $14,490
- Variance: $14,490 - $14,820 = **-$330** (Unfavorable)

Overall, the variances indicate that while the company served slightly fewer meals than planned, there was a negative effect on revenue and total expenses, all showing unfavorable variances except for facility rent and insurance, which had no variance.