Problem 9-21 Critique a Report; Prepare a Performance Report [LO9-1, LO9-4, LO9-6]

TipTop Flight School offers flying lessons at a small municipal airport. The schools owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. A recent variance report appears below:

TipTop Flight School Variance Report For the Month Ended July 31
	Actual Results		Planning Budget		Variances
Lessons		185		180
Revenue	$	41,490	$	40,500	$	990	F
Expenses:
Instructor wages		11,520		11,340		180	U
Aircraft depreciation		6,845		6,660		185	U
Fuel		3,710		3,240		470	U
Maintenance		3,260		3,150		110	U
Ground facility expenses		2,420		2,510		90	F
Administration		4,290		4,380		90	F
Total expense		32,045		31,280		765	U
Net operating income	$	9,445	$	9,220	$	225	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
Revenue	$225q
Instructor wages	$63q
Aircraft depreciation	$37q
Fuel	$18q
Maintenance	$ 630 + $14q
Ground facility expenses	$1,610 + $5q
Administration	$4,200 + $1q