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Hirons Air uses two measures of activity, flights and passengers, in the cost formulas in its...

Hirons 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 $58,340 per month plus $3,094 per flight plus $15 per passenger. The company expected its activity in November to be 89 flights and 245 passengers, but the actual activity was 92 flights and 247 passengers. The actual cost for plane operating costs in November was $335,690. The spending variance for plane operating costs in November would be closest to:

Multiple Choice

  • $1,691 U

  • $11,003 U

  • $11,003 F

  • $1,691 F

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Answer #1

The cost formula for plane operating costs is $58,340 per month plus $3,094 per flight plus $15 per passenger.

Actual activity was 92 flights and 247 passengers

Budgeted cost of actual activity = 58,340 + 3,094 x 92 + 15 x 247

= 58,340 + 284,648 + 3,705

= $346,693

The actual cost for plane operating costs in November was $335,690.

Spending variance = Budgeted cost - Actual cost

= 346,693 - 335,690

= $11,003 F

Third option is correct

The spending variance for plane operating costs in November would be closest to: $11,003 F

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