Question

Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company’s planning budget for December appears below:
Air Meals
Planning Budget
For the Month Ended December 31
Budgeted meals (q) . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Revenue ($3.80q) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,000
Expenses:
Raw materials ($2.30q) . . . . . . . . . . . . . . . . . . . . . . 46,000
Wages and salaries ($6,400  + $0.25q). . . . . . . . . . 11,400
Utilities ($2,100 + $0.05q). . . . . . . . . . . . . . . . . . . . 3,100
Facility rent ($3,800) . . . . . . . . . . . . . . . . . . . . . . . . 3,800
Insurance ($2,600). . . . . . . . . . . . . . . . . . . . . . . . . . 2,600
Miscellaneous ($700 + $0.10q) . . . . . . . . . . . . . . . . 2,700
Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,600
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . $ 6,400
In December, 21,000 meals were actually served. The company’s flexible budget for this level of activity is as follows:
Air Meals
Flexible Budget
For the Month Ended December 31
Budgeted meals (q) . . . . . . . . . . . . . . . . . . . . . . 21,000
Revenue ($3.80q) . . . . . . . . . . . . . . . . . . . . . . . $79,800
Expenses:
Raw materials ($2.30q) . . . . . . . . . . . . . . . . . 48,300
Wages and salaries ($6,400  + $0.25q) . . . . 11,650
Utilities ($2,100 + $0.05q) . . . . . . . . . . . . . . 3,150
Facility rent ($3,800) . . . . . . . . . . . . . . . . . . . 3,800
Insurance ($2,600) . . . . . . . . . . . . . . . . . . . . 2,600
Miscellaneous ($700 + $0.10q) . . . . . . . . . . 2,800
Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . 72,300
Net operating income . . . . . . . . . . . . . . . . . . . . $7,500
Required:
1. Prepare a report showing the company’s activity variances for December.
2. Which of the activity variances should be of concern to management? Explain.



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  • CreatedSeptember 27, 2013
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