Flexible budget variance report

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
Planning Actual
Budget Results Variances
Lessons . . . . . . . . . . . . . . . . . . 150 155
Revenue . . . . . . . . . . . . . . . . . $33,000 $33,900 $900 F
Expenses:
Instructor wages . . . . . . . . . 9,750 9,870 120 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
Administration . . . . . . . . . . . 3,390 3,320 70 F
Total expense . . . . . . . . . . . . . 24,970 25,820 850 U
Net operating income . . . . . . . $ 8,030 $ 8,080 $ 50 F

After several months of using such variance reports, the owner has become frustrated. For example,
she is quite confi dent 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 . . . . . . . . . . . . . . ........................................$220q
Instructor wages . . . . . . . . . . . . . . . . . . . $65q
Aircraft depreciation . . . . . . . . . . . . . . . . $38q
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15q
Maintenance . . . . . . . . . . . . . . . . . . . . . . $530 $12q
Ground facility expenses . . . . . . . . . . . . $1,250 $2q
Administration . . . . . . . . . . . . . . . . . . . . . $3,240 $1q

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.