The performance (in thousands of dollars) of Kenmore Airlines for the most recent year is shown in the following table. 

The master budget had been based on a budget of $0.20 revenue per passenger-kilometer. A passenger-kilometre is one paying passenger flown one kilometre. An average airfare decrease of 8 percent had helped generate an increase in passenger-kilometres flown that was 10 percent in excess of the master budget for the year. 

The price per litre of jet fuel rose above the price used to formulate the master budget. The average jet fuel price increase for the year was 10 percent. 

1. Prepare a summary report similar to Exhibit 12-5, page 495, to help the president understand performance for the most recent year. 

2. Assume that jet fuel costs are purely variable and that the quantity of fuel used was at the same level of efficiency as predicted in the master budget. What part of the flexible-budget variance for variable expenses is attributable to jet fuel expenses? Explain. 

Exhibit 12-5 Dominion Company Summary of Performance for the Month Ended June 30, 2012 

When should a company use activity-based flexible budgets? When a significant portion of its costs varies with cost drivers other than units of production. In our Dominion Company example, the $500 per setup is the only such cost. For the rest of this chapter we will ignore the fact that this cost varies with the number of setups, and go back to assuming that Dominion’s operations are simple enough that a traditional flexible budget with a single cost driver is appropriate.

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Actual Results at Actual Static Variance Prices Budget $300,000 $ ? $ ? Revenue 5,000 U Variable expenses 200,000 195,000* Contribution margin 105,000 ? 7,000 Fixed expenses 87,000 80,000 $ ? $ 25,000 $ ? Income * Includes jet fuel of $90,000