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EXERCISE 93 Prepare a Report Showing Revenue and Spending Variances [LO93]

Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and

sold 8,000 pounds of oysters in August. The companys flexible budget for August appears below:

In July, 17,800 meals were actually served. The companys flexible budget for this level of activity

appears below:

Flight Caf

Flexible Budget

For the Month Ended July 31

Budgeted meals ( q ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,800

Revenue ($4.50 q ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,100

Expenses:

Raw materials ($2.40 q ) . . . . . . . . . . . . . . . . . . . . . . . . . 42,720

Wages and salaries ($5,200 1 $0.30 q ) . . . . . . . . . . . . . 10,540

Utilities ($2,400 1 $0.05 q ) . . . . . . . . . . . . . . . . . . . . . . . 3,290

Facility rent ($4,300) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,300

Insurance ($2,300) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,300

Miscellaneous ($680 1 $0.10 q ) . . . . . . . . . . . . . . . . . . . 2,460

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,610

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,490

Quilcene Oysteria

Flexible Budget

For the Month Ended August 31

Actual pounds ( q ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Revenue ($4.00 q ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $32,000

Expenses:

Packing supplies ($0.50 q ) . . . . . . . . . . . . . . . . . . . . . . . 4,000

Oyster bed maintenance ($3,200) . . . . . . . . . . . . . . . . . 3,200

Wages and salaries ($2,900 1 $0.30 q ) . . . . . . . . . . . . . 5,300

Shipping ($0.80 q ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,400

Utilities ($830) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830

Other ($450 1 $0.05 q ) . . . . . . . . . . . . . . . . . . . . . . . . . . 850

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,580

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,420

The actual results for August appear below:

Quilcene Oysteria

Income Statement

For the Month Ended August 31

Actual pounds . . . . . . . . . . . . . . . . . . . . . . . 8,000

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,200

Expenses:

Packing supplies . . . . . . . . . . . . . . . . . . . 4,200

Oyster bed maintenance . . . . . . . . . . . . . 3,100

Wages and salaries . . . . . . . . . . . . . . . . . 5,640

Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . 6,950

Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 810

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 980

Total expense . . . . . . . . . . . . . . . . . . . . . . . 21,680

Net operating income . . . . . . . . . . . . . . . . . $13,520

Vulcan Flyovers

Operating Data

For the Month Ended July 31

Actual

Results

Flexible

Budget

Planning

Budget

Flights ( q ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 48 50

Revenue ($320.00 q ) . . . . . . . . . . . . . . . . . . . . . . . . . . $13,650 $15,360 $16,000

Expenses:

Wages and salaries ($4,000 1 $82.00 q ) . . . . . . . . . 8,430 7,936 8,100

Fuel ($23.00 q ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,260 1,104 1,150

Airport fees ($650 1 $38.00 q ) . . . . . . . . . . . . . . . . . 2,350 2,474 2,550

Aircraft depreciation ($7.00 q ) . . . . . . . . . . . . . . . . . . 336 336 350

Office expenses ($190 1 $2.00 q ) . . . . . . . . . . . . . . 460 286 290

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,836 12,136 12,440

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . $ 814 $ 3,224 $ 3,560

Fixed Cost per Month Cost per Cruise Cost per Passenger

Vessel operating costs . . . $5,200 $480.00 $2.00

Advertising . . . . . . . . . . . . . $1,700

Administrative costs . . . . . $4,300 $24.00 $1.00

Insurance . . . . . . . . . . . . . . $2,900

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. Prepare a flexible budget performance report for July.

2. Which of the variances should be of concern to management? Explain.