Question

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 $2,886 per route plus $13 per commuter. The company expected its activity in November to be 88 routes and 258 commuters, but the actual activity was 93 routes and 263 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

• $23,567 Favorable

• $9,072 Favorable

• $14,495 Favorable

• $9,072 Unfavorable

• $23,567 Unfavorable

Answer 1

Total Budgeted Operating Costs

Estimation Costs of $ 56,850 + $ 2,886 * Total Routes + $ 13* Total Commuters

= 56850 + 2886*93 + 13*263

= 56850 + 268398 + 3419

= $ 328,667

Actual Costs for the month of November = $ 305,100

Variance = Budgeted - Actual

= 328,667 - 305,100

= $ 23,567

Option A $ 23,567 Favorable is the correct answer.

The variance is the difference between the standard and actual and it is favorable because the company actual costs are much less than the company have actually estimated or budgeted.

The budgeted cost has been calculated on the basis of standard costs for actual activity.