Help Seve & Es Groupe Alr uses two measures of activity, flights and passengers,

Question

Help Seve & Es Groupe Alr 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 $36.330 per month plus $2,076 93 flights and 243 passengers, but the actual activity was 92 flights and was $226,310. The activity variance for plane operating costs in October would be closest to per flight plús $1 per passenger. The company expected its activity in October to be 248 passengers. The actual cost for plane operating costs in October Multiple Choice $3,331 F 2.071U $3.331 u 2.0M Prev 4f Next 2 3 5

Explanation / Answer

Activity cost = Flights cost + Passengers cost

Standard activity cost = ($2,076 × 93 flights) + ($1 × 243 passengers)

                                    = $193,068 + $243

                                    = $193,311

Actual activity cost = ($2,076 × 92 flights) + ($1 × 248 passengers)

                                    = $190,992 + $248

                                    = $191,240

Activity variance = Standard cost – Actual cost

                             = 193,311 – 191,240

                             = $2,071 favorable

Since the actual cost is smaller than the standard cost, the variance is favorable.

Answer: 4th option

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