Air Meals is a company that prepares in-flight meals for airlines in its kitchen

Prepare a Report Showing Activity Variances
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 ($3.80 q) ……………………………………………………….             $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 expenses ……………………………………………………………….            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 follows:

Air Meals
Flexible Budget
For the Month Ended December 31
Budgeted meals (q) ……………………………………………………..               21,000
Revenue ($3.80 q) ……………………………………………………….             $79,800
Expenses:
Raw Materials (2.30q) ………………………………………………..             48,300
Wages and Salaries ($6,400 + $0.25q) ………………………..             11,650
Utilities ($2,100 + $0.50q) ………………………………………….                3,150
Facility Rent ($3,800) …………………………………………………                3,800
Insurance ($2,600) ………………………………………………………              2,600
Miscellaneous ($700 + $0.10q) ……………………………………              2,800
Total expenses ……………………………………………………………….            72,300
Net operating income …………………………………………………….          $  7,500

Required:

Prepare a report showing the company’s activity variances for December.
Which of the activity variances should be of concern to management? Explain

Here’s the SOLUTION

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