Question

Mondo Snow Removal's cost formula for its vehicle operating cost is $1,560 per month plus $492 per snow-day. For the month of January, the company planned for activity of 16 snow-days, but the actual level of activity was 22 snow-days. The actual vehicle operating cost for the month was $11,910. The activity variance for vehicle operating cost in January would be closest to:

Answer 1

Activity Variance For Vehicle Operating Cost = $474 Favorable

Step-by-step explanation:

Activity Variance for Operating Cost = Standard Operating Cost - Actual Operating Cost

Operating cost = Direct variable cost + Fixed Cost

Standard cost formula = $1,560 per month + $492 per snow day

Cost for 22 snow days = $1,560 + ($492
`*` 22) = $12,384

Actual activity cost 22 snow days = $11,910

Activity variance = $12,384 - $11,910 = $474

Since the value is positive because actual cost is less than standard cost, therefore Activity Variance For Vehicle Operating Cost is favorable.

Final Answer

Activity Variance For Vehicle Operating Cost = $474 Favorable