4) Nordic Air uses two measures of activity, flights and passengers, in the cost

Question

4) Nordic 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 $38,720 per month plus $2,061 per flight plus $9 per passenger. The company expected its activity in June to be 76 flights and 238 passengers, but the actual activity was 75 flights and 239 passengers. The actual cost for plane operating costs in June was $196,310. What is the spending variance for plane operating costs in June?

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Explanation / Answer

Answer:-Spending variance =Actual results – Flexible results

=$196310 – {$38720+($2061 per flight*75 flights)+($9 per passenger*238 passenger)}

=$196310 – {$38720+$154575+$2142)

=$196310 - $195437

=$873 Adverse

The spending variance for plane operating costs in June is $873 Adverse, because actual operating costs is greater than the flexible budget.

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