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Managerial Accounting for Managers, Fourth Edition -t- Flexible Budgets and Performance Analysis a connect Additional student resources are available with Connect. EXERCISE 10-1 Prepare a Flexible Budget [LO 10-1] Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company's planning budget for May appears below: ,for Budgeted diving-hours (q) . ................. . 100 Revenue ($365.00q) ...................... . $36,500 Expenses: Wages and salaries ($8,000 + $125.00q).. . Supplies ($3.00q) ...................... .. Equipment rental ($1,800 + $32.00q) ..... . Insurance ($3,400) ...................... . Miscellaneous ($630 + $1.80q) .......... . 20,500 300 5,000 3,400 810 Total expense ............................ . 30,010 Net operating income ................ .': . .. . $ 6,490 Required: During May, the company's activity was actually 105 diving-hours. Prepare a flexible budget for that level of activity. EXERCISE 10-2 Prepare a Report Showing Activity Variances [LO 10-2] >m- Flight Cafe 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 July appears below: for Budgeted meals (q) ....................... . 18,000 Revenue ($4.50q) ......................... . $ 81,000 Expenses: Raw materials ($2.40q) .................. . Wages and salaries ($5,200 + $0.30q) .... . Utilities ($2,400 + $0.05q) ............... . Facility rent ($4,300) .................... . Insurance ($2,300) ...................... . Miscellaneous ($680 + $0.1 Oq) .......... . 43,200 10,600 3,300 4,300 2,300 2,480 Total expense ............................ 66,180 Net operating income ..................... . $ 14,820 In July, 17,800 meals were actually served. The company's flexible budget for thls level of activity appears below: Budgeted meals (q) ....................... . 17,800 Revenue ($4.50q) ...... , .................. . $80, 100 Expenses: Raw.materials ($2.40q) .................. . Wages and salaries ($5,200 + $0.30q) .... . Utilities ($2,400 + $0.05q) ............... . Facility rent ($4,300) .................... . Insurance ($2,300) ...................... . Miscellaneous ($680 + $0.1 Oq) .......... . 42,720 10,540 3,290 4,300 2,300 2,460 Total expense ............................ . 65,610 Net operating income ..................... . $14,490 4! 45! Exercises -----------------------~ I \\ 1 460 .1 BA510 ----------------------- ~........:--~--- ----~------ ; 460 Chapter 10 Required: 1. Prepare a report showing the company's activity variances for July. 2. Which of the activity variances should be of concern to management? Explain. EXERCISE 10-3 Prepare a Report Showing Revenue and Spending Variances [LO 10-3] Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 8,000 pounds of oysters in August. The company's flexible budget for August appears below: Actual pounds (q) ...................... . 8,000 Revenue ($4.00q) ...................... . $32,000 Expenses: Packing supplies ($0.50q) ............. . Oyster bed maintenance ($3,200) ..... . Wages and salaries ($2,900 + $0.30q) .. Shipping ($0.80q) .................... . Utilities ($830) ....................... . Other ($450 + $0.05q) ............... . 4,000 3,200 5,300 6,400 830 850 Total expense .............. , .......... . 20,580 Net operating income .................. . $11,420 The actual results for August appear below: Revenue .............................. . Expenses: Packing supplies ...................... _ Oyster bed maintenance .............. . Wages and salaries .................. . Shipping ............................ . Utilities ............................. . Other .............................. . Total expense ......................... . 4,200 3,100 5,640 6,950 810 980 21,680 Net operating income .................. . Required: Prepare a report showing the company's revenue and spending variances for August. EXERCISE 10-4 Prepare a Flexible Budget Performance Report [LO 10-4] Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company's operations in July below: Managerial Accounting for Managers, Fourth Edition '-~~~~~~~~~~~--~~~~~~~~~~~~~~~~~~--~~~- Flexible Budgets and Performance Analysis Revenue ($320.00q) .................................. . Expenses: Wages and salaries ($4,000 + $82.00q) . .............. . Fuel ($23.00q) .................................... .. Airport fees ($650 + $38.00q) ....................... . Aircraft depreciation ($7.00q) ........................ . Office expenses ($190 + $2.00q) . .................... . 8,430 1,260 2,350 336 460 Total expense ........................................ . Net operating income ................................. . $ 7,936 1,104 2,474 336 286 8,100 1,150 2,550 350 290 12,836 12,136 12,440 814 $ 3,224 $ 3,560 The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount. Required: 1. 2. Prepare a flexible budget performance report for July. Which of the variances should be of concern to management? Explain. EXERCISE 10-5 Prepare a Flexible Budget with More Than One Cost Driver [LO 10-5] Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers-the.number of cruises and the number of passengers-that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 80 passengers can be accommodated on the tour boat. Data concerning the company's cost formulas appear below: Vessel operating costs ......... . Advertising .................... . Administrative costs ............ . Insurance ..................... . $24.00 $1.00 For example, vessel operating costs should be $5,200 per month plus $480 per cruise plus $2 per passenger. The company's sales should average $25 per passenger. The company's planning budget for July is based on 24 cruises and 1,400 passengers. Required: Prepare the company's planning budget for July. EXERCISE 10--6 Critique a Variance Report [LO 10-6) The Terminator Inc. provides on-site residential pest extermination services. The company has .several mobile teams who are dispatched from a central location in company-owned trucks. The company uses the number of jobs to measure activity. At the beginning of April, the company budgeted for 100 jobs, but the actual number of jobs turned out to be 105. A report comparing the budgeted revenues and costs to the actual revenues and costs appears below: 461 461