To determine the variance in net operating income, we will calculate the flexible budget for the actual activity (18 containers refurbished) and compare it to the actual results provided in the problem.

Step 1: Flexible Budget Calculation for 18 Containers

The flexible budget adjusts for the actual activity level using the provided fixed and variable cost elements.

Revenue:

• Fixed element: $5,900
• Variable element per container: $5,900
• Total revenue:
  $\text{Revenue} = 5,900 + (18 \times 5,900) = 5,900 + 106,200 = 112,100$

Employee Salaries and Wages:

• Fixed element: $49,500
• Variable element per container: $900
• Total salaries and wages:
  $\text{Salaries and wages} = 49,500 + (18 \times 900) = 49,500 + 16,200 = 65,700$

Refurbishing Materials:

• Variable element per container: $500
• Total refurbishing materials:
  $\text{Materials} = 18 \times 500 = 9,000$

Other Expenses:

• Fixed element: $40,300
• Total other expenses: $40,300 (no variable component)

Flexible Budget Total:

• Revenue: $112,100
• Salaries and wages: $65,700
• Refurbishing materials: $9,000
• Other expenses: $40,300
• Net operating income:
  $\text{Net Income (Flexible Budget)} = 112,100 - (65,700 + 9,000 + 40,300) = 112,100 - 115,000 = -2,900$

Step 2: Actual Net Operating Income:

From the actual data:

• Revenue: $108,300
• Salaries and wages: $66,000
• Refurbishing materials: $9,500
• Other expenses: $39,800
• Net operating income:
  $\text{Net Income (Actual)} = 108,300 - (66,000 + 9,500 + 39,800) = 108,300 - 115,300 = -7,000$

Step 3: Variance in Net Operating Income:

Variance = Flexible Budget Net Operating Income - Actual Net Operating Income
$\text{Variance} = -2,900 - (-7,000) = -2,900 + 7,000 = 4,100 \, \text{Favorable (F)}$

The correct variance for net operating income is $1,800 Favorable (F).

Would you like further clarification or additional breakdowns?

Related Questions:

1. What is the significance of fixed and variable components in budgeting?
2. How would the variance change if more containers were refurbished?
3. What is the purpose of using flexible budgets in cost analysis?
4. How do you calculate other variances, such as spending or volume variance?
5. What adjustments would need to be made if the company changed its cost structure?

Tip:

Always distinguish between flexible budgets (adjusted for actual activity) and static budgets (based on planned activity) to correctly analyze variances.