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: show all the work process:
1. Calculate the company’s activity variances for July. (Hint: Refer to Exhibit 9–6.)
2. Which of the activity variances should be of concern to management? Explain.