Pettry Snow Removal's cost formula for its vehicle operating cost is $2,170 per month plus $408 per snow-day. For the month of December, the company planned for activity of 16 snow-days, but the actual level of activity was 13 snow-days. The actual vehicle operating cost for the month was $7,600. The vehicle operating cost in the planning budget for December would be closest to:
A)$7,474
B)$9,354
C)$8,698
D)$7,600

Question

Quizplus · Accepted Answer

To find the vehicle operating cost in the planning budget for December, we need to use the cost formula provided by Pettry Snow Removal:

Vehicle operating cost = $2,170 + ($408 x number of snow-days)

Based on the planning activity of 16 snow-days, the cost would be:

Vehicle operating cost = $2,170 + ($408 x 16) = $8,618

However, the actual level of activity in December was 13 snow-days, so we need to adjust our calculation:

Vehicle operating cost = $2,170 + ($408 x 13) = $7,594

This is lower than the actual cost of $7,600, so we can eliminate choices A and D.

The closest answer is choice C, $8,698, which is significantly higher than both the actual and adjusted planning costs. This suggests that the company may have over-budgeted for vehicle operating costs in its planning budget.

Pettry Snow Removal's Cost Formula for Its Vehicle Operating Cost