Subject Code: U25291
Subject Name: Financial Management
Southsea Flight School offers flying lessons at a small municipal airport. Generally, performance reports are prepared monthly. Mr. Michael, the school’s owner and manager, has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. Michael prepared the below performance report for June 2019. He is delighted that he was able to deliver 155 lessons in June and the actual profit was £50 above the budget. Michael is planning to expand his business and he is considering the different sources of finance. However, Michael has become frustrated after several months of using such variance reports. He is wondering whether the variance report is useful for evaluating how well revenues and costs were controlled during June. For example, he is quite confident that instructor wages were very tightly controlled in June, but the report shows an unfavourable variance. The variance report of June is as follows:
Required: You work for the firm of consultants that has been asked to advise the Southsea Flight School. Write a report to Mr. Michael covering the following:
1. Explain why he should not be so pleased with the results of June 2019 and discuss the usefulness of the above variance report.
2. Support your report with the flexed budget for June 2019 and recalculate the variances. Explain the variances of instructors’ wages, revenues and ground facility
3. In your report, discuss the advantages and disadvantages of budgetary control system.
4. Explain how budgeted cash flow differs from budgeted net income.
5. Discuss the external and internal sources of finance that Michael can consider.
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