MANAGERIAL

TipTop Flight School offers flying lessons at a small municipal airport. The school's owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. Arecent variance report appears below: TipTop Flight School Variance Report For the Month Ended July 31 Actual Planning Results Budget Variances 185 180 Lessons $40,570 $39,600 $970 F Revenue Expenses Instructor wages 11,330 11,160 170 U Aircraft depreciation 6,845 6,660 185 U 4,000 3,600 U 2,970 2,830 140 U 2,070 2.170 100 F Fuel Maintenance Ground facility expenses Administration 4,280 4.360 80 F Total expense 31,495 30,780 715 U Net operating income 9,075 8,820 $255 F After several months of using such variance reports, the owner has become frustrated. For example, she is quite confident that instructor wages were very tightly controlled in July, but the report shows an unfavorable variance. The planning budget was developed using the following formulas, where q is the number of lessons sold: Cost Formulas $220 Revenue Instructor wages Aircraft depreciation $37q Fuel $20 Maintenance 670 $12