Thomasson Air uses two measures of activity, flights and passengers, in the cost

Question

Thomasson 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 $36,150 per month plus $2,040 per flight plus $1 per passenger. The company expected its activity in April to be 75 flights and 225 passengers, but the actual activity was 74 flights and 230 passengers. The actual cost for plane operating costs in April was $185,300. The activity variance for plane operating costs in April would be closest to:

Explanation / Answer

expected budget = 36150 + 2040 * 75 + 1 * 225 =189375

flexible budget = 36150 + 2040 * 74 +1 * 230 =187340

activity variance = 189375-187340 =2035

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