Standahl Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $39,590 per month plus $2,649 per flight plus $4 per passenger. The company expected its activity in August to be 82 flights and 294 passengers, but the actual activity was 85 flights and 297 passengers. The actual cost for plane operating costs in August was $255,690.The activity variance for plane operating costs in August would be closest to:
A) $2,294 F
B) $7,959 U
C) $7,959 F
D) $2,294 U

Question

Quizplus · Accepted Answer

The activity variance is the difference between the budgeted cost and the actual cost. The budgeted cost is calculated using the cost formula and the expected activity. The actual cost is the actual cost incurred.The budgeted cost for plane operating costs in August is:$39,590 + (82 * $2,649) + (294 * $4) = $254,398The activity variance is:$255,690 - $254,398 = $1,292The activity variance is favorable because the actual cost is less than the budgeted cost. The activity variance is closest to $7,959 F.

Standahl Air Uses Two Measures of Activity, Flights and Passengers