Posted: July 24th, 2016

Prepare a report showing the company’s activity variances for December?

6. Prepare a Report Showing Activity Variances
Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company’s planning budget for December appears below:
Air Meals
Planning Budget
For the Month Ended December 31
Budgeted meals (q) …………………………………………………….. 20,000
Revenue ($3.80 q) ………………………………………………………. $76,000
Expenses:
Raw Materials (2.30q) ……………………………………………….. 46,000
Wages and Salaries ($6,400 + $0.25q) ……………………….. 11,400
Utilities (2,100 + $0.05q) ……………………………………………. 3,100
Facility Rent ($3,800) …………………………………………………. 3,800
Insurance ($2,600) ……………………………………………………… 2,600
Miscellaneous ($700 + $0.10q) …………………………………… 2,700
Total expenses ………………………………………………………………. 69,600
Net operating income ……………………………………………………. $ 6,400
In December, 21,000 meals were actually served. The company’s flexible budget for this level of activity follows:
Air Meals
Flexible Budget
For the Month Ended December 31
Budgeted meals (q) …………………………………………………….. 21,000
Revenue ($3.80 q) ………………………………………………………. $79,800
Expenses:
Raw Materials (2.30q) ……………………………………………….. 48,300
Wages and Salaries ($6,400 + $0.25q) ……………………….. 11,650
Utilities ($2,100 + $0.50q) …………………………………………. 3,150
Facility Rent ($3,800) ………………………………………………… 3,800
Insurance ($2,600) ……………………………………………………… 2,600
Miscellaneous ($700 + $0.10q) …………………………………… 2,800
Total expenses ………………………………………………………………. 72,300
Net operating income ……………………………………………………. $ 7,500
Required:
1. Prepare a report showing the company’s activity variances for December.
2. Which of the activity variances should be of concern to management? Explain