Concept explainers
Prepare a Flexible Budget with More Than One Cost Driver
Alyeski Tours operates day tours of coastal glaciers in Alaska on its tow boat the Blue Glacer. Management has identified two cost drivers−the number of cruises and the number of passengers−that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 80 passengers can be accommodated on the tour boat. Data concerning the companys cost formulas appear below:
For example, vessel operating costs should be Ss.200 per month plus $480 per cruise plus $2 per passenger. The company’s sales should average S2S per passenger. In July. the company provided 24 cruises for a total of 1,400 passengers.
Required: Using Exhibit 9−7 as your guide, prepare the company’s flexible budget for July.
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Introduction To Managerial Accounting
- Novo, Inc., wants to develop an activity flexible budget for the activity of moving materials. Novo uses eight forklifts to move materials from receiving to stores. The forklifts are also used to move materials from stores to the production area. The forklifts are obtained through an operating lease that costs 18,000 per year per forklift. Novo employs 25 forklift operators who receive an average salary of 50,000 per year, including benefits. Each move requires the use of a crate. The crates are used to store the parts and are emptied only when used in production. Crates are disposed of after one cycle (two moves), where a cycle is defined as a move from receiving to stores to production. Each crate costs 1.80. Fuel for a forklift costs 3.60 per gallon. A gallon of gas is used every 20 moves. Forklifts can make three moves per hour and are available for 280 days per year, 24 hours per day (the remaining time is downtime for various reasons). Each operator works 40 hours per week and 50 weeks per year. Required: 1. Prepare a flexible budget for the activity of moving materials, using the number of cycles as the activity driver. 2. Calculate the activity capacity for moving materials. Suppose Novo works at 80 percent of activity capacity and incurs the following costs: Prepare the budget for the 80 percent level and then prepare a performance report for the moving materials activity. 3. Calculate and interpret the volume variance for moving materials. 4. Suppose that a redesign of the plant layout reduces the demand for moving materials to one-third of the original capacity. What would be the budget formula for this new activity level? What is the budgeted cost for this new activity level? Has activity performance improved? How does this activity performance evaluation differ from that described in Requirement 2? Explain.arrow_forwardAnalyze Adventure Park’s staffing budget Adventure Park is a large theme park. Staffing for the theme park involves many different labor classifications, one of which is the parking lot staff. The parking lot staff collects parking fees, provides directions, and operates trams. The staff size is a function of the number of daily vehicles. Adventure Park has determined from historical experience that a staff member is needed for every 200 vehicles. Adventure Park estimates staff for both school days and nonschool days. Nonschool days are higher attendance days than school days. The number of expected vehicles for each day is as follows:arrow_forwardBruer Jeep Tours operates Jeep tours in the heart of the Colorado Rockies. The company bases its budgets on two measures of activity (I.e., cost drivers), namely guests and Jeeps. One vehicle used in one tour on one day counts as a jeep. Each Jeep has one tour guide. The company uses the following data in its budgeting: Guests Jeeps Revenue Expenses: Fixed element per month Revenue $0 Tour guide wages Vehicle expenses $ 6,000 Administrative expenses $ 3,100 In November, the company budgeted for 370 guests and 165 Jeeps. The actual activity for the month was 384 guests and 150 Jeeps. Tour guide wages Vehicle expenses Administrative expenses Total expense Net operating income Variable element per guest $183 Required: Prepare a report showing the company's activity variances for November. Label each varlance as favorable (F) or unfavorable (U). (Indicate the effect of each varlance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (l.e., zero varlance). Input…arrow_forward
- Mcinerney Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its budgets on two measures of activity (i.e., cost drivers), namely guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following data in its budgeting: Fixed elementper month Variable elementper guest Variable element per jeep Revenue $ 0 $ 161 $ 0 Tour guide wages $ 0 $ 0 $ 132 Vehicle expenses $ 4,600 $ 22 $ 75 Administrative expenses $ 3,300 $ 15 $ 0 In October, the company budgeted for 339 guests and 105 jeeps. The actual activity for the month was 410 guests and 152 jeeps. Required: Prepare the company's flexible budget for the actual level of activity in October.arrow_forwardHoward Cooper, the president of Finch Computer Services, needs your help. He wonders about the potential effects on the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal Year 1: Standard rate and variable costs Service rate per hour Labor cost Overhead cost Selling, general, and administrative cost. Expected fixed costs Facility maintenance Selling, general, and administrative Required: a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 28,000 hours of services in Year 1. b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant's analysis, if Finch charges customers $57 per hour, the firm can achieve 31,000 hours of services. Prepare a flexible budget using the consultant's assumption. c. The same consultant also suggests that if the firm…arrow_forwardNEED HELP ASAP!!!! Cryan Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its budgets on two measures of activity (i.e., cost drivers), namely guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following data in its budgeting: Fixed element per month Variable element per guest Variable element per jeep $0 $ 287 $0 Tour guide wages $0 $0 $ 154 Vehicle expenses $ 6,300 $ 22 $77 Administrative expenses $ 2,800 $ 21 $0 In May, the company budgeted for 532 guests and 237 jeeps. The company's income statement showing the actual results for the month appears below: Revenue Cryan Jeep Tours Income Statement For the Month Ended May 31 Actual guests Actual jeeps Revenue Expenses: Tour guide wages Vehicle expenses Administrative expenses Total expense Net operating income 547 232 $ 122,854 38,757 24,140 11,388 74,285 $ 48,569 Required: Prepare a report showing the company's revenue…arrow_forward
- Cryan Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its budgets on two measures of activity (i.e., cost drivers), namely guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following data in its budgeting: Fixed elementper month Variable elementper guest Variable element per jeep Revenue $ 0 $ 157 $ 0 Tour guide wages $ 0 $ 0 $ 167 Vehicle expenses $ 5,000 $ 9 $ 64 Administrative expenses $ 1,500 $ 8 $ 0 In May, the company budgeted for 467 guests and 172 jeeps. The company's income statement showing the actual results for the month appears below: Cryan Jeep Tours Income Statement For the Month Ended May 31 Actual guests 482 Actual jeeps 167 Revenue $ 65,854 Expenses: Tour guide wages 28,357 Vehicle expenses 17,640 Administrative expenses 4,888 Total expense 50,885 Net operating…arrow_forwardActivity-Based Flexible Budgeting Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity: • Four welding units, with a lease cost of $15,000 per year per unit • Six welding employees each paid a salary of $58,000 per year (A total of 12,000 welding hours are supplied by the six workers.) • Welding supplies: $400 per job • Welding hours: 4 hours used per job During the year, the activity operated at 95 percent of capacity and incurred the following actual activity and resource costs. • Lease cost: $60,000 • Salaries: $365,400 • Parts and supplies: $1,134,200 Required: 1. Prepare a flexible budget formula for the welding activity using welding hours as the driver. Welding cost = $fill in the blank e95687f99006fa4_1 + $fill in the blank e95687f99006fa4_2 X 2. Prepare a performance report for the welding activity. In the last column of Foy Company Activity-Based…arrow_forwardActivity-Based Flexible Budgeting Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity: • Four welding units, with a lease cost of $11,000 per year per unit • Six welding employees each paid a salary of $51,000 per year (A total of 12,000 welding hours are supplied by the six workers.) • Welding supplies: $400 per job • Welding hours: 4 hours used per job During the year, the activity operated at 85 percent of capacity and incurred the following actual activity and resource costs. • Lease cost: $44,000 • Salaries: $321,300 • Parts and supplies: $1,014,900 1. Prepare a performance report for the welding activity. In the last column of Foy Company Activity-Based Performance Report, if variance amount is unfavorable select "U" , select "F", if it is Favorable and select "NA" if there is no variance. Foy Company Activity-Based Performance Report Activity Actual Cost Budgeted Cost…arrow_forward
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