Hirons 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 $56,840 per month plus $2,874 per flight plus $13 per passenger. The company expected its activity in November to be 86 flights and 255 passengers, but the actual activity was 89 flights and 257 passengers. The actual cost for plane operating costs in November was $305,100. The spending variance for plane operating costs in November would be closest to:
A) $2,219 U
B) $10,867 U
C) $10,867 F
D) $2,219 F

Question

Quizplus · Accepted Answer

Using the cost formula given:
Expected cost = $56,840 + ($2,874 x 86 flights) + ($13 x 255 passengers) = $305,722
Actual cost = $305,100

Spending variance = Actual cost - Expected cost
= $305,100 - $305,722
= -$622

Since the actual cost is less than the expected cost, the spending variance is unfavorable (F). Therefore, the answer is C, $10,867 F.

Hirons Air Uses Two Measures of Activity, Flights and Passengers