Problem 11-45 Preparing and Using a Columnar Flexible Budget: Tour Company: Ethical Issues (LO 11-1. 11-2, 11-6) Flaming Foliage Sky Tours is a small sightseeing tour company in New Hampshire. The rm 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 rst 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 greatJhb." 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. FLAHING FDLIAGE SKY Toms Performance Report For the Month of September Formula. static Flexible Actual Budget Budget (28.333 air (34.333 air (per air mile) nilesl nilesl Variance Passenger revenue $ 15.33 $423. 333 $513. 333 $93. 333 u Less: Variable expenses: Fuel :1; 1.?9 $ 59.933 5 53.333 5 6.933F Aircraft maintenance 2.45 33. B33 33. 333 16. 533 F Flight crew salaries 1.53 43.433 51.333 "3.533 F Selling and administrative 3.33 31. B33 132. 333 23. 233 F Total variable expenses $ 3.65 $242. 933 $294. 133 $51. 233 F Contribution margin $ 5-35 $177. 133 $215. 999 $33; 333 U Less: Fixed expenses: Per Month Depreciation on aircraft $ 9.333 $ 9. 633 5 9. 633 5F 3 Landing fees 3.633 4.633 3.633 1. 333U Supervisory salaries 33.333 33. 333 33. 333 2. 333 F Selling and administrative 42.333 4?. 133 42. 333 5. 133 U Total fixed expenses $33.233 $ 91. 633 5 33. 233 5F 3. 433 u Operating income is: 35. 533 $127. 333 $42. 233 U Complete this question by entering your answers in the tabs below. 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: 28,000 air miles, 34,000 air miles, and 37,000 air miles. Activity Level (Air Miles) 28,000 34,000 37,000 Variable expenses: Aircraft maintenance Flight crew salaries Fuel Selling and administrative Total variable expenses $ O $ $ 0 Fixed expenses: Depreciation on aircraft Landing fees Selling and administrative Supervisory salaries Total fixed expenses $ O $ $ 0 Total expensesComplete this question by entering your answers in the tabs below. Required 1 Required 2 Required 4 Required 5 In spite of several favorable expense variances shown on the report above, the company's September operating income was only about two-thirds of the expected level. Identify some of the possible reasons. (Select which of the following statements (is) are true by selecting an "X".) The variance report is misleading because the activity levels used for the comparison differ. X There is a large unfavorable variance in passenger revenue. X Favorable expense variances have no impact on operating income. There are unfavorable variances in fixed expenses. X Complete this question by entering your answers in the tabs below. 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 (28,000 Flexible Budget Budget (per air Variance air miles) (28,000 air miles) mile) Variable expenses: Aircraft maintenance Favorable Flight crew salaries Unfavorable Fuel Unfavorable Selling and administrative Favorable Total variable expenses $ 0.00 $ 0 $ 0 Unfavorable Fixed expenses: Per Month Depreciation on aircraft None Landing fees Unfavorable Selling and administrative Unfavorable Supervisory salaries Favorable Total fixed expenses $ 0 $ 0 $ Unfavorable Total expenses Unfavorable Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 4 Required 5 Jacqueline Frost presented the revised expense report to Leif along with the memo explaining why the original performance report was misleading. Leif did not take it well. He complained of Frost's "interference" and pointed out that the company had been doing just fine without her. "I'm taking my report to the owner tomorrow," Leif insisted. "Yours just makes us look bad." What are Frost's ethical obligations in this matter? (Select which of the following statements (is) are true by selecting an "X".) Show less A Frost should let Leif decide on the best course of action. Frost should resign in protest. Frost should show the owner her memo to Leif as well as the revised expense variance report. X Frost has an ethical obligation to make the owner aware that she believes Leif's analysis is faulty. X