The performance (in thousands of dollars) of Kenmore Airlines for the most recent year is shown in the following table (see attachment - Table A). The static budget had been based on a budget of $0.20 revenue per passenger mile. A passenger mile is one passenger flown one mile. An average airfare decrease of 8% had helped generate an increase in passenger miles flown that was 10% in excess of the static budget for the year. The price per gallon of jet fuel rose above the price used to formulate the static budget. The average jet fuel price increase for the year was 10%. 1) Prepare a summary report, similar to Table B (see attachment) to help the president understand performance for the most recent year. 2) Assume that jet fuel costs are purely variable, and the quantity of fuel used was at the same level of efficiency as predicted in the static budget. What part of the flexible budget variance for variable expenses is attributable to jet fuel expenses? Explain"

Table A: Actual Results at Actual Prices Revenue $? Variable expenses 200,000 Contribution Margin ? Fixed expenses 87,000 Income $? Static Budget Variance $300,000 195,000 105,000 80,000 $25,000 $? 5,000 U ? 7,000 U $? Table B: Actual Results at Actual Activity level (1) Units Sales Variable Costs Contribution margin Fixed costs Operating income Flexible Budget Variances (2) = (1)-(3) Flexible budget for actual sales activity (3) Sales Activity Variances (4) =(3) - (5) Static Budget