Question

The Latiker commuter bus company uses two measures of activity, routes and commuters, in the cost...

The Latiker commuter bus company uses two measures of activity, routes and commuters, in the cost formulas in its budgets and performance reports. The cost formula for bus operating costs is $56,850 per month plus $2,876 per route plus $17 per commuter. The company expected its activity in November to be 89 routes and 259 commuters, but the actual activity was 94 routes and 262 commuters. The actual cost for bus operating costs in November was $305,100. The spending variance for bus operating costs in November would be closest to:

Multiple Choice

  • $26,548 Unfavorable

  • $26,548 Favorable

  • $12,117 Favorable

  • $12,117 Unfavorable

  • $14,431 Favorable

Business   Accounting   
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Answer #1

Ans:

Spending Variance = Actual Expense - Budgeted Expense for actual output

Actual Expense = $305,100

Budgeted Expense:

Operating costs : $56,850

Route costs : $2,876 * 94 = $270,344

Commuters cost : $17 * 262 = $4,454

Total Budgeted cost = $56,850 + $270,344 + $4,454 = $331,648

Spending Variance : $305,100 - $331,648 = $26,548 (Favourable) because actual expense are less than budgeted.

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