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 $36,130 per month plus $2,036 per flight plus $1 per passenger. The company expected its activity in April to be 73 flights and 223 passengers, but the actual activity was 72 flights and 228 passengers. The actual cost for plane operating costs in April was $179,050. The activity variance for plane operating costs in April would be closest to:

$5,931 F

$5,931 U

$2,031 U

$2,031 F

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 $36,130 per month plus $2,036 per flight plus $1 per passenger. The company expected its activity in April to be 73 flights and 223 passengers, but the actual activity was 72 flights and 228 passengers. The actual cost for plane operating costs in April was $179,050. The activity variance for plane operating costs in April would be closest to:

Explanation / Answer

                         Budgeted activity Actual Activity Flights Passengers Flights Passengers 73 223 72 228 Budgeted cost Fixed 36130 Flight based @ 2036 per flight 148628 passenger based @ 1 per passenger 223 Total cost 184981 Actual cost Fixed 36130 Flight based @ 2036 per flight 146592 passenger based @ 1 per passenger 228 Total cost 182950 Variance = Budgeted Cost - Actual Cost                    = 184981 - 182950                    = 2031 F As Actual cost is lower than budgeted the variance is 2031 F

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