Bobe Air uses two measures of activity, flights and passengers, in the cost form

Question

Bobe 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 $51,900 per month plus $3,030 per flight plus $10 per passenger. The company expected its activity in May to be 55 flights and 223 passengers, but the actual activity was 58 flights and 222 passengers. The actual cost for plane operating costs in May was $229,020. The plane operating costs in the planning budget for May would be closest to $220,780 O $229,860 O $218,042 O $229,020

Explanation / Answer

The plane operating costs in planning budget for May = Fixed Cost + (Cost per flight* Total flights) + (Cost per passenger * Total Budgeted Passengers)

= $ 51,900 + ($ 3,030* 55) + ( $ 10 * 223)

= $ 220,780

Hence, the correct answer is $ 220,780

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