Ch. 9 Notes
1. Exercise 9-1 Prepare a Flexible Budget [LO9-1]
Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget
Sound area. The company’s planning budget for May appears below:
Puget Sound Divers
Planning Budget
For the Month Ended May 31
Budgeted diving-hours (q) 100
Revenue ($365.00q) $ 36,500
Expenses:
Wages and salaries ($8,000 + $125.00q) 20,500
Supplies ($3.00q) 300
Equipment rental ($1,800 + $32.00q) 5,000
Insurance ($3,400) 3,400
Miscellaneous ($630 + $1.80q) 810
Total expense 30,010
Net operating income $ 6,490
During May, the company’s actual activity was 105 diving-hours.
Required: Prepare a flexible budget for May.
Explanation
Revenue ($365.00 × 105) = $38,325
Wages and salaries ($8,000 + ($125.00 × 105)) = $21,125
Supplies ($3.00 × 105) = $315
Equipment rental ($1,800 + ($32.00 × 105)) = $5,160
Miscellaneous ($630 + ($1.80 × 105)) = $819
2. Exercise 9-2 Activity Variances [LO9-2]
Flight Café prepares in-flight meals for airlines in its kitchen located next to a local airport. The company’s planning
budget for July appears below:
Flight Café
Planning Budget
For the Month Ended July 31
Budgeted meals (q) 18,000
Revenue ($4.50q) $ 81,000
Expenses:
Raw materials ($2.40q) 43,200
Wages and salaries ($5,200 + $0.30q) 10,600
Utilities ($2,400 + $0.05q) 3,300
Facility rent ($4,300) 4,300
Insurance ($2,300) 2,300
Miscellaneous ($680 + $0.10q) 2,480
Total expense 66,180
Net operating income $ 14,820
In July, 17,800 meals were actually served. The company’s flexible budget for this level of activity appears below:
Flight Café
Flexible Budget
For the Month Ended July 31
Budgeted meals (q) 17,800
Revenue ($4.50q) $ 80,100
Expenses:
Raw materials ($2.40q) 42,720
Wages and salaries ($5,200 + $0.30q) 10,540
Utilities ($2,400 + $0.05q) 3,290
Facility rent ($4,300) 4,300
Insurance ($2,300) 2,300
Miscellaneous ($680 + $0.10q) 2,460
Total expense 65,610
Net operating income $ 14,490
Required: 1. Calculate the company’s activity variances for July. (Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
Explanation
1. Flight Café
Activity Variances
For the Month Ended July 31
Flexible Budget Planning Budget Activity Variances
Meals 17,800 18,000
Revenue ($4.50q) $ 80,100 $ 81,000 $ 900 U
Expenses:
Raw materials ($2.40q) 42,720 43,200 480 F
Wages and salaries ($5,200 + $0.30q) 10,540 10,600 60 F
Utilities ($2,400 + $0.05q) 3,290 3,300 10 F
Facility rent ($4,300) 4,300 4,300 0 None
Insurance ($2,300) 2,300 2,300 0 None
Miscellaneous ($680 + $0.10q) 2,460 2,480 20 F
Total expense 65,610 66,180 570 F
Net operating income $ 14,490 $ 14,820 $ 330 U
3. Exercise 9-3 Revenue and Spending Variances [LO9-3]
Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 8,000 pounds of
oysters in August. The company’s flexible budget for August appears below:
Quilcene Oysteria
Flexible Budget
For the Month Ended August 31
Actual pounds (q) 8,000
Revenue ($4.00q) $ 32,000
Expenses:
Packing supplies ($0.50q) 4,000
Oyster bed maintenance ($3,200) 3,200
Wages and salaries ($2,900 + $0.30q) 5,300
Shipping ($0.80q) 6,400
Utilities ($830) 830
Other ($450 + $0.05q) 850
Total expense 20,580
Net operating income $ 11,420
The actual results for August appear below:
Quilcene Oysteria
Income Statement
For the Month Ended August 31
Actual pounds 8,000
Revenue $ 35,200
Expenses:
Packing supplies 4,200
Oyster bed maintenance 3,100
Wages and salaries 5,640
Shipping 6,950
Utilities 810
Other 980
Total expense 21,680
Net operating income $ 13,520
Required: Calculate the company’s revenue and spending variances for August. (Indicate the effect of each variance by
selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as
positive values.)
Explanation
Quilcene Oysteria
Revenue and Spending Variances
For the Month Ended August 31
Actual
Results Flexible Budget
Revenue and Spending
Variances
Pounds 8,000 8,000
Revenue ($4.00q) $ 35,200 $ 32,000 $ 3,200 F
Expenses:
Packing supplies ($0.50q) 4,200 4,000 200 U
Oyster bed maintenance ($3,200) 3,100 3,200 100 F
Wages and salaries ($2,900 +
$0.30q) 5,640 5,300 340 U
Shipping ($0.80q) 6,950 6,400 550 U
Utilities ($830) 810 830 20 F
Other ($450 + $0.05q) 980 850 130 U
Total expense 21,680 20,580 1,100 U
Net operating income $ 13,520 $ 11,420 $ 2,100 F
4. Exercise 9-4 Prepare a Flexible Budget Performance Report [LO9-4]
Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in
1982. Data concerning the company’s operations in July appear below:
Vulcan Flyovers
Operating Data
For the Month Ended July 31
Actual
Results
Flexible
Budget
Planning
Budget
Flights (q) 48 48 50
Revenue ($320.00q) $13,650 $15,360 $16,000
Expenses:
Wages and salaries ($4,000 + $82.00q) 8,430 7,936 8,100
Fuel ($23.00q) 1,260 1,104 1,150
Airport fees ($650 + $38.00q) 2,350 2,474 2,550
Aircraft depreciation ($7.00q) 336 336 350
Office expenses ($190 + $2.00q) 460 286 290
Total expense 12,836 12,136 12,440
Net operating income $814 $3,224 $3,560
The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an
entire plane for an overflight at a discount.
Required: 1. Prepare a flexible budget performance report for July that includes revenue and spending variances and
activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None"
for no effect (i.e., zero variance). Input all amounts as positive values.)
Explanation
1. Vulcan Flyovers
Flexible Budget Performance Report
For the Month Ended July 31
Actual
Results
Revenue and Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Flights (q) 48 48 50
Revenue ($320.00q) $ 13,650 $ 1,710 U $ 15,360 $640 U$16,000
Expenses:
Wages and salaries ($4,000 +
$82.00q) 8,430 494 U 7,936 164 F 8,100
Fuel ($23.00q) 1,260 156 U 1,104 46 F 1,150
Airport fees ($650 + $38.00q) 2,350 124 F 2,474 76 F 2,550
Aircraft depreciation ($7.00q) 336 0 None 336 14 F 350
Office expenses ($190 + $2.00q) 460 174 U 286 4 F 290
Total expense 12,836 700 U 12,136 304 F 12,440
Net operating income $ 814 $ 2,410 U $ 3,224 $336 U$3,560
5. Exercise 9-8 Flexible Budgets and Activity Variances [LO9-1, LO9-2]
Jake’s Roof Repair has provided the following data concerning its costs:
Fixed Cost
per Month Cost per
Repair-Hour
Wages and salaries $23,200 $16.30
Parts and supplies $8.60
Equipment depreciation $1,600 $0.40
Truck operating expenses $6,400 $1.70
Rent $3,480
Administrative expenses $4,500 $0.80
For example, wages and salaries should be $23,200 plus $16.30 per repair-hour. The company expected to work 2,800
repair-hours in May, but actually worked 2,900 repair-hours. The company expects its sales to be $44.50 per repair-hour.
Required: Compute the company’s activity variances for May. (Indicate the effect of each variance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
Explanation
Jake’s Roof Repair
Activity Variances
For the Month Ended May 31
Flexible Budget Planning Budget Activity Variances
Repair-hours (q) 2,900 2,800
Revenue ($44.50q) $ 129,050 $ 124,600 $4,450 F
Expenses:
Wages and salaries ($23,200 + $16.30q) 70,470 68,840 1,630 U
Parts and supplies ($8.60q) 24,940 24,080 860 U
Equipment depreciation ($1,600 + $0.40q) 2,760 2,720 40 U
Truck operating expenses ($6,400 + $1.70q) 11,330 11,160 170 U
Rent ($3,480) 3,480 3,480 0 None
Administrative expenses ($4,500 + $0.80q) 6,820 6,740 80 U
Total expense 119,800 117,020 2,780 U
Net operating income $ 9,250 $ 7,580 $1,670 F
6. Exercise 9-10 Planning Budget [LO9-1]
Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The
following table provides data concerning the company’s costs:
Fixed Cost
per Month
Cost per
Car Washed
Cleaning supplies $ 0.80
Electricity $ 1,200 $ 0.15
Maintenance $ 0.20
Wages and salaries $ 5,000 $ 0.30
Depreciation $ 6,000
Rent $ 8,000
Administrative expenses$ 4,000 $ 0.10
For example, electricity costs are $1,200 per month plus $0.15 per car washed. The company expects to wash 9,000 cars
in August and to collect an average of $4.90 per car washed.
Required: Prepare the company’s planning budget for August.
Explanation
Revenue ($4.90 × 9,000) = $44,100
Cleaning supplies ($0.80 × 9,000) = $7,200
Electricity ($1,200 + ($0.15 × 9,000)) = $2,550
Maintenance ($0.20 × 9,000) = $1,800
Wages and salaries ($5,000 + ($0.30 × 9,000)) = $7,700
Administrative expenses ($4,000 + ($0.10 × 9,000)) = $4,900
7. Exercise 9-11 Flexible Budget [LO9-1]
Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The
following table provides data concerning the company’s costs:
Fixed Cost
per Month Cost per
Car Washed
Cleaning supplies $ 0.80
Electricity $ 1,200 $ 0.15
Maintenance $ 0.20
Wages and salaries $ 5,000 $ 0.30
Depreciation $ 6,000
Rent $ 8,000
Administrative expenses$ 4,000 $ 0.10
For example, electricity costs are $1,200 per month plus $0.15 per car washed. The company actually washed 8,800 cars
in August and collected an average of $4.90 per car washed.
Required: Prepare the company’s flexible budget for August.
Explanation
Revenue ($4.90 × 8,800) = $43,120
Cleaning supplies ($0.80 × 8,800) = $7,040
Electricity ($1,200 + ($0.15 × 8,800)) = $2,520
Maintenance ($0.20 × 8,800) = $1,760
Wages and salaries ($5,000 + ($0.30 × 8,800)) = $7,640
Administrative expenses ($4,000 + ($0.10 × 8,800)) = $4,880
8. Exercise 9-12 Activity Variances [LO9-2]
Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The
following table provides data concerning the company’s costs:
Fixed Cost
per Month
Cost per
Car Washed
Cleaning supplies $ 0.80
Electricity $ 1,200 $ 0.15
Maintenance $ 0.20
Wages and salaries $ 5,000 $ 0.30
Depreciation $ 6,000
Rent $ 8,000
Administrative expenses$ 4,000 $ 0.10
For example, electricity costs are $1,200 per month plus $0.15 per car washed. The company expects to wash 9,000 cars
in August and to collect an average of $4.90 per car washed. The company actually washed 8,800 cars in August.
Required: Calculate the company's activity variances for August. (Indicate the effect of each variance by selecting "F"
for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
Explanation
Lavage Rapide
Activity Variances
For the Month Ended August 31
Flexible BudgetPlanning BudgetActivity Variances
Cars washed (q) 8,800 9,000
Revenue ($4.90q) $ 43,120 $ 44,100 $ 980 U
Expenses:
Cleaning supplies ($0.80q) 7,040 7,200 160 F
Electricity ($1,200 + $0.15q) 2,520 2,550 30 F
Maintenance ($0.20q) 1,760 1,800 40 F
Wages and salaries ($5,000 + $0.30q) 7,640 7,700 60 F
Depreciation ($6,000) 6,000 6,000 0 None
Rent ($8,000) 8,000 8,000 0 None
Administrative expenses($4,000 + $0.10q) 4,880 4,900 20 F
Total expense 37,840 38,150 310 F
Net operating income $ 5,280 $ 5,950 $ 670 U
