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. A recent variance report appears below: TipTop Flight School Variance Report For the Month Ended July 31 Lessons Revenue Expenses: Instructor wages Aircraft depreciation Fuel Maintenance Ground facility expenses Administration Total expense Net operating income Actual Results Planning Budget Variances 230 225 $ 66,350 $ 65,250 $1,100 F 14,830 14,625 205 U 8,050 7,875 175 U 5,200 4,500 700 U 4,720 4,515 205 U 3,025 3,050 25 P 4,175 4,255 40,000 38,820 80 T 1,1800 $ 26,350 $ 26,430 5:40 F After several months of using these 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 Instructor wages Aircraft depreciation Fuel Maintenance $290g $650 $35q $200 $690 +$17g Ground facility expenses Administration $2,150 +$4g $3,580 +$39 Required: 2.Complete the flexible budget performance report for the school for July Note: Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (ie., zero variance). Input all amounts as positive values. Lessons Revenue TipTop Flight School Flexible Budget Performance Report For the Month Ended July 31 Actual Results 230 $ 66,350 Revenue and Spending Variances Flexible Budget Activity Variances Planning Budget 225 F $ 65,250 Expenses Instructor wages 14,830 F 14.625 Aircraft depreciation 8,050 None U 7.875 Fuel 5.200 D 2 4.500 Maintenance 4,720 3 4.515 Ground facility expenses 3,025 F U 3,050 Administration 4,175 F U 4,255 Total expense 40,000 D 2 38.820 Net operating income $ 26,350 U $ 26,430 "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I make any move. Our division's return on investment (RO) has led the company for three years, and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company's Office Products Division for this year are given below. Sales Variable expenses Contribution margin Fixed expenses Net operating incone Divisional average operating assets $22,440,000 14,094,600 8,345,400 6,130,000 $3,215,400 $ 4,480,000 The company had an overall return on investment (ROI) of 18.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,430,600. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses Required: $9,705,000 65% of sales $2,591,710 1. Compute the Office Products Division's margin, turnover, and ROI for this year 2. Compute the Office Products Division's margin, turnover, and ROI for the new product line by itself 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income. a. Compute the Office Products Division's residual income for this year b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. Req 1 to 3 Req 4 Reg 5 Req 6A to 6C Req 60 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product line by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. 1. ROI for this year 2. ROI for the new product line by itself 3. ROI for next year % C. MORTIS Req 4 > Show less