1. Explain why the company's April net profit was only about two-thirds of the expected level, despite several favourable variable expense variances shown in the above performance report.

2. Explain why the original performance/variance report prepared by the manager of Aircraft Operations is misleading.

Fantastic Sky Tours Pty Ltd Performance Report for the month of April 2020 Formula flexible Actual Static budget (32 000 budget Variance (per air-km) air-km) (35 000 air-km) Passenger revenue $3.50 $112 000 $122 500 $10 500 U Less Variable costs: Fuel 0.50 17 000 17 500 500 F Aircraft maintenance 0.75 23 500 26 250 2 750 F Flight crew salaries 0.40 13 100 14 000 900 F Selling and administration 0.80 24 900 28 000 3 100 F Total variable expenses $2.45 $ 78 500 $ 85 750 $ 7 250 F Contribution margin $1.05 $ 33 500 $ 36 750 $ 3 250 U Less Fixed costs: Depreciation on aircraft $2 900 $ 2900 $ 2 900 $ O Landing fees 900 1 000 900 100 U Supervisory salaries 9 000 8 600 9 000 400 F Selling and administrative 11 000 12 400 11 000 1 400 U Total fixed expenses $23 800 $ 24 900 $ 23 800 $ 1 100 U Net profit $ 8 600 $ 12 950 $ 4 350 U