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

Question

Thomasson 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 $36,110 per month plus $2,032 per flight plus $1 per passenger. The company expected its activity in April to be 71 flights and 221 passengers, but the actual activity was 70 flights and 226 passengers. The actual cost for plane operating costs in April was $175,030. The activity variance for plane operating costs in April would be closest to:

a) $5,573 F

b) $2,027 F

c) $2,027 U

d) $5,573 U

Thanks!

Thomasson 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 $36,110 per month plus $2,032 per flight plus $1 per passenger. The company expected its activity in April to be 71 flights and 221 passengers, but the actual activity was 70 flights and 226 passengers. The actual cost for plane operating costs in April was $175,030. The activity variance for plane operating costs in April would be closest to:

Explanation / Answer

answer is b $2,027 F

cost involved in standard budget = 36110+221+144272 = 180603

cost involved in flexible budget = 36110+226+142240 = 178576

activity variance = 180603 - 178576 = 2027 saving in cost so it is favorable

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