20 in revenue per passenger mile. Variable expenses were 195,000 / 1,500, 000 = $0.13 per passenger mile in the flex budget. Fixed costs were $80,000 and that should not change.
The results Flex for Actual Level shows that the actual performance was lower than what would have been expected given the actual sales levels recorded and the figures listed in the static budget. This is to be expected, because the actual revenue per passenger mile was decreased in order to achieve those higher passenger mile figures.
The columns 2 and 4 can now be filled in, according to the formulas presented on page 310. Column 2 = Column 1 -- Column 3; and Column 4 = Column 3 -- Column 5.
The total chart is as follows:
Flex for Sales-Act
Static
Actual
Variances
Actual level
Variance
Budget
Passenger Miles
1650000
0
1650000
150000
1500000
Revenue
303600
-26400
330000
30000
300,000
Variable Exp
200,000
-14500
214500
19500
195,000
Contribution
103,600
-11900
115,500
10500
105,000
Fixed Exp
The actual level would have anticipated variable costs of $214,500 but the actual variable costs were $200,000, meaning that for the amount of passenger miles flown, the variable cost was actually lower than expected. Normally, the jet fuel cost increase would have increased the variable expenses, not decreased them. However, the key is that the variable cost figures here are calculated per passenger mile flown and the number of such miles increases even though the number of flights remained the same, because of the decrease in ticket prices. Thus, even though the fuel costs increased, the total fuel cost was spread out over many more passengers, meaning that on a per passenger mile basis, the fuel cost actually decreased. Essentially, the expectation was that the variable expenses (of which fuel is one component) should have increased by $19,500, but they only increased by $5,000. The fuel cost itself therefore has $19,500 attributable to it, but…
