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. FLAMING FOLIAGE SKY TOURS Performance Report For the Month of September Formula Flexible Static Budget Actual Budget (per air mile) (30,000 air miles) (34,000 air miles) $ 11.00 $330,000 $374,000 Variance $44,000 u Passenger revenue Less: Variable expenses: Fuel Aircraft maintenance Flight crew salaries Selling and administrative Total variable expenses Contribution margin $ 1.60 2.05 1.30 2.20 $ 7.15 $ 3.85 $ 50,800 60,500 40,000 63,900 $215, 200 $114,800 $ 54,400 69, 700 44,200 74,800 $243,100 $130,900 $ 3,600 F 9,200 F 4,200 F 10,900 F $ 27,900 F $16,100 V Less: Fixed expenses: Depreciation on aircraft Landing fees Supervisory salaries Selling and administrative Total fixed expenses Operating income Per Month $ 8,800 2,800 25,000 34,000 $70,600 $ 8,800 3,000 24,000 38,300 $ 74,100 $ 40,700 $ 8,800 2,800 25,000 34,000 $ 70,600 $ 60,300 $ 0 200 U 1,000 F 4,300 U $ 3,500 V $19,600 V Required 1 Required 2 Required 4 Required 5 Prepare a columnar flexible budget for Flaming Foliage Sky Tours' expenses, using air miles as the cost driver at the following activity levels: 30,000 air miles, 34,000 air miles, and 37,000 air miles. Activity Level (Air Miles) 30,000 34,000 37,000 Variable expenses: Total variable expenses S 0 Fixed expenses S 0 S 0 S 0 Total fixed expenses Total expenses 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.) Formula Flexible Actual (30,000 Flexible Budget Budget (per air Variance air miles) (30,000 air miles) mile) Variable expenses: Total variable expenses S 0.00 S 0 S 0 Fixed expenses Per Month Total fixed expenses S 0 S 0 S 0 Total expenses