1.
Introduction: The difference between the planning budget and the flexible budget is known as activity variance. It arises due to the difference between the planned activity level and the actual activity level.
The reaction of the owner on the variance report.
2.
Introduction: The difference between the planning budget and the flexible budget is known as activity variance. It arises due to the difference between the planned activity level and the actual activity level.
To prepare: The flexible budget performance report.
3.
Introduction: The difference between the planning budget and the flexible budget is known as activity variance. It arises due to the difference between the planned activity level and the actual activity level.
To evaluate: The performance of the school.
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MANAGERIAL ACCOUNTING (CUSTOM LL)
- 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: Lessons Revenue Expenses: Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Total expense Net operating income Revenue Instructor wages. Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Lessons Revenue TipTop Flight School Variance Report For the Month Ended July 31 Expenses: Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Total expense Net operating income After several months of using these 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…arrow_forwardCritiquing a Variance Report; Preparing a Performance Report Several years ago, Westmont Corporation developed a comprehensive budgeting system for planning and control purposes. While departmental supervisors have been happy with the system, the factory manager has expressed considerable dissatisfaction with the information being generated by the system. A report for the company’s Assembly department for the month of march follows: After receiving a copy of this cost report, the supervisor of the assembly department started, “These reports are super. It makes me feel really good to see how well things are going in my department. I can’t understand why those people upstairs complain so much about the reports.” For the last several years, the company’s marketing department has chronically failed to meet the sales goals expressed in the company’s monthly budgets. Required: 1. The company’s president is uneasy about the cost reports and would like you to evaluate their usefulness to the…arrow_forwardTipTop 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: Lessons Revenue Expenses: Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Total expense Net operating income Revenue Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Lessons Revenue Expenses: TipTop Flight School Variance Report For the Month Ended July 31 Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Total expense Net operating income Actual Results After several months of using these 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.…arrow_forward
- The Lockit Company manufactures door knobs for residential homes and apartments. Lockit is considering the use of simple (single-driver) and multiple regression analyses to forecast annual sales because previous forecasts have been inaccurate. The new sales forecast will be used to initiate the budgeting process and to identify more completely the underlying process that generates sales. Larry Husky, the controller of Lockit, has considered many possible independent variables and equations to predict sales and has narrowed his choices to four equations. Husky used annual observations from 20 prior years to estimate each of the four equations. Following are definitions of the variables used in the four equations and a statistical summary of these equations: St=ForecastedsalesindollarsforLockitinperiodtSt1=ActualsalesindollarsforLockitinperiodt1Gt=ForecastedU.S.grossdomesticproductinperiodtGt1=ActualU.S.grossdomesticproductinperiodt1Nt1=Lockitsnetincomeinperiodt1 Required: 1. Write Equations 2 and 4 in the form Y = a + bx. 2. If actual sales are 1,500,000 in the current year, what would be the forecasted sales for Lockit in the coming year? 3. Explain why Larry Husky might prefer Equation 3 to Equation 2. 4. Explain the advantages and disadvantages of using Equation 4 to forecast sales.arrow_forwardHaysbert Company provides management services for apartments and rental units. In general, Haysbert packages its services into two groups: basic and complete. The basic package includes advertising vacant units, showing potential renters through them, and collecting monthly rent and remitting it to the owner. The complete package adds maintenance of units and bookkeeping to the basic package. Packages are priced on a per-rental unit basis. Actual results from last year are as follows: Haysbert had budgeted the following amounts: Required: 1. Calculate the contribution margin variance. 2. Calculate the contribution margin volume variance. 3. Calculate the sales mix variance.arrow_forward(This is the middle of the two images) 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 $230q instructor wages $60q aircraft depreciation $30q fuel $14q maintenance $500 + $10q ground facility expensesarrow_forward
- Using responsibility reports to evaluate cost, revenue, and profit centers The accountant for a subunit of Speed Sports Company went on vacation before completing the subunit’s monthly responsibility report. This is as far as she got: Requirements Complete the responsibility report for this subunit. Based on the data presented, what type of responsibility center is this Subunit. Which items should be investigated if part of management’s decision criteria is to investigate all variances exceeding $12,000?arrow_forwardThese are True/False questions. ____ 6. If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12. ____ 7. A process whereby the effect of fluctuations in level of activity is built into the budgeting system is referred to as flexible budgeting. ____ 8. In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center. ____ 9. The capital expenditures budget summarizes future plans for acquisition of fixed assets. ____ 10. The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called capital investment analysis.arrow_forwardPreparing a Flexible Budget for Performance Reporting Suppose you receive the following performance report from the accounting department for your first month as plant manager for a new company. Your supervisor, the vice president of manufacturing, has concerns that the report does not provide an accurate picture of your performance in the area of cost control.arrow_forward
- Critique a Variance Report The Terminator Inc. provides on-site residential pest extermination services. The company bas several mobile teams who are dispatched from a central location in company-owned trucks. The company uses the number of jobs to measure activity. At the beginning of April, the company budgeted for 100 jobs, but the actual number of jobs turned out to be 105. A report comparing the budgeted revenues and costs to the actual revenues and costs appears below: Required: Is the above variance report useful for evaluating how well revenues and costs were controlled during April? Why or Why not?arrow_forwardQuestion 2.1 TeleTube Inc. manufacturers TVs. Unfortunately, some of the company's data was misplaced by an IT error. Use the following information to replace the lost data: Analysis Actual Results Flexible Variances Flexible Budget Sales- Volume Variances Static Budget Units Sold 112,500 112,500 103,125 Revenues $42,080 $1,000 F (A) $1,400 U (B) Variable Costs (C) $200 U $15,860 $2,340 F $18,200 Fixed Costs $8,280 $860 F $9,140 $9,140 Operating Income $17,740 (D) $16,080 (E) $15,140 Required What are the respective flexible-budget revenues (A)? What are the static-budget revenues (B)? What are the actual variable costs (C) What is the total flexible-budget variance (D)? What is the total sales-volume variance (E)? What is the total static-budget variance?arrow_forwardCritiquing a Cost Report; Preparing a Performance Report Frank Weston, supervisor of the Freemont Corporation’s matching department, was visibly upset after being reprimanded for his department’s poor performance over the prior month. The department’s cost control report is given below: “I just can’t understand all of these unfavorable variances,” Weston complained to the supervisor of another department. “When the boss called me in, 1 thought he was going to give me a pat on the back because 1 know for a fact that my department worked more efficiently last month than it has ever worked before. Instead, he tore me apart. I thought for a minute that it might be over the supplies that were stolen out of our warehouse last month. But they only amounted to a couple of hundred dollars, and just look at this report. Everything is unfavorable.” Direct labor wages and supplies are variable costs; supervision and depreciation are fixed costs; and maintenance and utilities are mixed costs. The…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning