Question

Orscheln Snow Removal's cost formula for its vehicle operating cost is $2,800 per month plus $381 per snow-day. For the month of February, the company planned for activity of 17 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $7,920. The activity variance for vehicle operating cost in February would be closest to:

Answer 1

$1,143 favorable

Step-by-step explanation:

cost per month = $2,800 + $381 per day

budgeted costs for February = $2,800 + ($381 x 17 days) = $9,277

actual days worked during February 14

flexible budget = $2,800 + ($381 x 14) = $8,134

Activity variance = flexible budget costs - fixed budgeted costs = $8,134 - $9,277 = -$1,143 favorable

Activity variance measures the difference between a flexible budget and the fix budget.