Question

Groupe 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 $2036 per flight plus $1 per passenger. The company expected its activity in October 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 October was $179,050. The activity variance for plane operating costs in October would be closest to:

Answer 1

$5,931 Favorable

Step-by-step explanation:

Operating cost for actual activity:

= $36,130 + ($2,036 per flight × No. of flights) + ($1 per passenger × No. of passenger)

= $36,130 + ($2,036 per flight × 73) + ($1 per passenger × 223)

= $36,130 + $148,628 + $223

= $184,981

Activity variance:

= Operating cost for actual activity - Actual cost for plane operating costs

= $184,981 - $179,050

= $5,931 Favorable