5

1. Prepare a Report Showing Activity Variances (L0 10-2)

   Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The companys 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 companys 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 companys activity variances for December.
   2. Which of the activity variances should be of concern to management? Explain