Question

Canniff 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 $57,210 per month plus $2,644 per flight plus $5 per passenger. The company expected its activity in February to be 72 flights and 280 passengers, but the actual activity was 71 flights and 281 passengers. The actual cost for plane operating costs in February was $245,290. The plane operating costs in the planning budget for February would be closest to:Multiple Choice

A. $221,478
B. $220,254
C. $218,862
D. $217,630

Answer 1

Operating costs = $246,339

Explanation:

Given

Operating costs = $57,210 + $2,644 per flight + $5 per passenger

Expected Activity

72 flights.

280 passengers

Actual Activity

71 flights

281 passengers.

Actual operating cost = $245,290

The formula given in the question will be used and we'll take into consideration the actual events that happened in the month of February (not the expected activities).

Formula:

Operating costs = $57,210 + $2,644 per flight + $5 per passenger

Actual Activity

71 flights

281 passengers.

By substitution

Operating costs = $57,210 + $2,644 * 71 + $5 * 281

Operating costs = $246,339