KSB 631 Homework - Week 7 Problem 1 Vision Sky Tours is a sightseeing tour company based in New England. The firm specializes in aerial tours of the New England countryside and coastline. Until recently, the company had no accounting department. Routine tasks, such as billing, were 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 Smith was hired as a new controller. During her first week on the job, Smith was given the following performance report. The report was prepared by Red Sky, 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," Sky noted."My operations people are really doing a great job." Later that day, Smith looked at the performance report more carefully. Portomance Report For the Month of September Formula Static Flexible Actual Budget Budget (32,000 35,000 per al milos ar ies) atros) Varance Passenger revenue $10.50 $336.000 $367,500 $31.500U L: Vratio exponer Fua 1.50 $ 51,000 $ 52,500 $ 1.500 F Arcraft mantenance 2.25 70.500 78,750 8,250 F Fight crow stories 1.20 30,300 42,000 2,700 F Selling and administratie 2.40 74.700 84.000 9,300 F Total variatio expenses $ 735 $235,500 $257.250 $21.750 F contrbution margin $ 3.15 $100,600 $110.250 9.750 Leos: Fred expertos Depreciation on aircrant Landing tops Supervisory salotos Soing and administrativo Total xod expenses Operating income Per Month $ 3.700 2,700 27,000 33.000 $71.400 $ 8.700 3,000 25,800 37,200 $ 74.700 $ 25,800 $ 8,700 2.700 27.000 33,000 5.71.400 S 38.850 0 300 U 1.200 F 4.200 U $ 3,300 U $13,050 U 2. In spite of several favorable expense variances shown on Red Sky's report, the company's September operating income was only about two-thirds the expected level. Why? 3. Write a brief memo to the manager of aircraft operations xplaining why his variance report is misleading