Flaming Foliage Sky Tours is a small sightseeing tour company in New Hampshire. The firm specializes in aerial tours of the New England countryside during September and October, when the fall color is at its peak. Until recently, the company had not had an accounting department. Routine bookkeeping tasks, such as billing, had been handled by an individual who had little formal training in accounting. As the business began to grow, however, the owner recognized the need for more formal accounting procedures. Jacqueline Frost has recently been hired as the new controller, and she will have the authority to hire an assistant. During her first week on the job, Frost was given the following performance report. The report was prepared by Red Leif, the company's manager of aircraft operations, who was planning to present it to the owner the next morning. "Look at these favorable variances for fuel and so forth," Leif pointed out, as he showed the report to Frost. "My operations people are really doing a great job." Later that day, Frost looked at the performance report more carefully. She immediately realized that it was improperly prepared and would be misleading to the company's owner. FLANING FOLIAGE SKY TOURS Performance Report For the Month of September Formula Flexible Budget Actual (40,000 air Statie Budget (43,000 air (per air mile) Passenger revenue Less: Variable expenses Fuel Aircraft maintenance $ 11.50 miles) $460,000 miles) $494,500 Variance $34,500 $ 1.60 $ 67,900 $ 68,000 $ 9007 2.25 87,500 96,750 9,250 7 Flight crev salaries 1.60 64,700 Selling and administrative 2.70 106,900 68,800 114,100 Total variable expenses $ 8.15 $327,000 $350,450 4,100 F 9,200 $23,450 Contribution margin 3.35 $133,000 $144,050 $11,050 Less: Fixed expe Per Month Depreciation on aircraft Landing fees Supervisory salaries Selling and administrative $ 10,200 $ 10,200 $ 10,200 $ 0 4,200 39,000 48,000 4,500 4,200 300 U 35,000 39,000 Total fixed expenses $101,400 53,700 $103,400 48,000 4,000 3,700 $101,400 $ 2,000 Operating income $ 29,600 $ 42,650 $13,050 Required: 1. Prepare a columnar flexible budget for Flaming Follage Sky Tours' expenses, using air miles as the cost driver at the following activity levels: 40,000 air miles, 43,000 air miles, and 46,000 air miles. 2. In spite of several favorable expense variances shown on the report above, the company's September operating income was only about two-thirds of the expected level. Identify some of the possible reasons. 4. Prepare a revised expense variance report for September, which is based on the flexible budget prepared in part (1). 5. Jacqueline Frost presented the revised expense report to Lelf along with the memo explaining why the original performance report was misleading. Leif did not take it well. He complained of Frost's "interference" and pointed out that the company had been doing just fine without her. "I'm taking my report to the owner tomorrow," Leif insisted. "Yours just makes us look bad." What are Frost's ethical obligations in this matter? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 4 Required 5 Prepare a revised expense variance report for September, which is based on the flexible budget prepared in part (1). (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Round "per air mile" answers to 2 decimal places.) Variable expenses: Formula Flexible Budget (per air mile) Actual (40,000 Flexible Budget air miles) Variance (40,000 air miles) Total variable expenses $ 0.00 $ 0 $ Fixed expenses Per Month Total fixed expenses $ 0 $ 0 $ Total expenses