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

Question

nta Air uses two measures of activity, flights and passengers, in the cost formulas in its bdgets an performance reports. The budgeted cost formula for plane operating costs is given below. The and actual activity in August in terms of the number of lights and passengers are listed below. The actun plane operating costs in August was $255,690 company expected Budgeted cost formula: S S 2,649 per flight Plane operating cost Flight cost Passenger cost 39,590 per month S 12 per passenger Actual 85 flights 301 passengers 80 flights 286 passengers 18 The activity variance for plane operating costs in August would be closest to: S 2,294 Favorable s 7.959 Favorable A. B. C. s 13,425 Unfavorable D. s 13,245 Unfavorable E. None of the above

Explanation / Answer

The acticity varaince for plane operating costs in August would be closest to C. $13,425 Unfavourable which is computed as follows :-

Activity variance = (Budgeted flights - actual flights)Budgeted Rate per flight + (Budgeted Passengers - Actual Passengers)Budgeted Rate per passenger

= (80 flights - 85 flights)$2,649 per flight + (286 passengers - 301 passengers)$12 per passenger

= (-)$13,245 + (-)$180 = (-)$13,425 , negative (-) here means unfavourable (i.e. $13,425 Unfavourable)

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