Tip Top flight school offers flying lesson at small municipal airport

             
eLearning Question 1          
Tip Top flight school offers flying lesson at 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 appear below:
  TipTop Flight School  
  Variance Report  
  For the Month Ended July 31  
             
    Planning Actual      
    Budget Results Variances    
  Lessons               150              155      
             
  Revenue $33,000 $33,900                 900 F  
  Expenses          
  Instructor wages             9,750            9,870 120 U  
  Aircraft depreciation 5700 5890 190 U  
  Fuel 2250 2750 500 U  
  Maintenance 2330 2450 120 U  
  Ground facility expenses 1550 1540 10 F  
  Administration 3390 3320 70 F  
  Total expenses 24970 25820 850 U  
  Net operating income 8030 8080 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     $1250+$2q    
  Administration     $3240+$1q    
             
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
             
             
             
eLearning Question 2          
Frank Weston, supervisor of the Freemont Company's Machining 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:
  FREMONT COMPANY  
  Machining Department  
  Cost Control Report  
  For the Month Ended June 30  
             
    Planning Actual      
    Budget Results Variances    
  Machine-hours           35,000           38,000      
             
  Direct labor wages  $       80,500  $       86,100  $         5,600 U  
  Supplies           21,000           23,100             2,100 U  
  Maintenance         134,000         137,300             3,300 U  
  Utilities           15,200           15,700               500 U  
  Supervision           38,000           38,000                    -    
  Depreciation           80,000           80,000                    -    
  Total  $     368,700  $     380,200  $       11,500 U  
             
"I just can't understand all the red ink," Weston complained to the supervisor of another department. "When the boss called me in, I thought he was going to give me a pat on the back because I know for a fact that my department work 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 labour wages and supplies are variable costs; supervision and depreciation are fixed costs; and maintenance and utilities are mixed costs. The fixed component of the budgeted maintenance cost is $92,000; the fixed component of the budgeted utilities cost $11,700.
Required:
1 Evaluate the company's cost control report and explain why the variances were all unfavorable
2 Prepare a performance report that will help Mr. Weston's superiors assess how well costs were controlled in the Machining Department.



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