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:

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:

Required:

1.         Should the owner feel frustrated with the variance reports? Explain.

2.         Prepare a flexible budget performance report for the school for July.

3.         Evaluate the school’s performance for July.

Transcribed Image Text:

TipTop Flight School Variance Report For the Month Ended July 31 Actual Planning Variances Results Budget 155 Lessons 150 Revenue $33,000 $33,900 900 F Expenses: Instructor wages 9,870 9,750 120 U Aircraft depreciation 5,700 5,890 190 U Fuel 2,250 2,750 500 U Maintenance 2,330 2,450 120 U Ground facility expenses 1,550 1,540 10 F 3,390 Administration 3,320 70 F Total expense 25,820 24,970 850 U 8,080 Net operating income ... 8.030 $50 F ...