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 $36,240 per month plus $2,058 per flight plus $1 per passenger. The company expected its activity in October to be 84 flights and 234 passengers, but the actual activity was 83 flights and 239 passengers. The actual cost for plane operating costs in October was $201,020. The activity variance for plane operating costs in October would be closest to:

Answer 1

$8,331 Favorable

Step-by-step explanation:

The computation of activity variance for plane operating costs is shown below:-

For computing the activity variance for plane operating costs we need to find first the expected cost which is shown below:-

Expected cost = $36,240 + ($2,058 × 84) + (1 × 239)

= $36,240 + $172,872 + 239

= $209,351

Activity variance for plane operating costs in October = Expected - Actual

= $209,351 - $201,020

= $8,331 Favorable