Problem
Roland's Jeep Tours operates jeep tours in the heart of the Blue Ridge Mountains. 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
Revenue $0 $132 $0
Tour guide wages $0 $0 $158
Vehicle expenses $4,700 $13 $79
Admin. expenses $2,100 $2 $0
In September, the company budgeted for 456 guests and 155 jeeps. The company's income statement showing the actual results for the month appears below:
Roland's Jeep Tours Income Statement For the Month Ended September 30
Actual guests 481 Actual jeeps 153
Revenue $62,222
Expenses:
Tour guide wages 23,664
Vehicle expenses 22,530
Administrative expenses 3,122
Total expense 49,316
Net operating income $12,906
Required:
• First, create a flexible budget for the month of September.
• Next, using this flexible budget and the actual results, prepare a variance report showing the company's revenue and spending variances for September.
• Finally, label each variance as favorable (F) or unfavorable (U).