Question

Mondo Snow Removal's cost formula for its vehicle operating cost is $1,300 per month plus $621 per snow-day. For the month of January, the company planned for activity of 20 snow-days, but the actual level of activity was 23 snow-days. The actual vehicle operating cost for the month was $15,060. The activity variance for vehicle operating cost in January would be closest to:

Answer 1

The correct answer is $1,863 (U).

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:

Planned Activity = 20 days

Actual activity days = 23 days

Contribution margin = $621

Operating cost =- $15,060

So, we can calculate the activity variance by using following formula:

Activity Variance = ( Planned activity days - Actual activity days) × Contribution margin

By putting the value, we get

Activity variance = ( 20 - 23 ) × $621

= -3 × $621

= - $1,863 ( Negative shows unfavorable)

= $1,863 (U)