Question

Canniff 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 $57,010 per month plus $2,636 per flight plus $7 per passenger. The company expected its activity in February to be 68 flights and 272 passengers, but the actual activity was 67 flights and 273 passengers. The actual cost for plane operating costs in February was $234,340. The plane operating costs in the planning budget for February would be closest to:

Multiple Choice

• $238,162

• $236,976

• $235,533

• $234,340

The Consumer Products Division of Goich Corporation had average operating assets of $1,100,000 and net operating income of $111,900 in May. The minimum required rate of return for performance evaluation purposes is 10%.

What was the Consumer Products Division's residual income in May?

Multiple Choice

• $(1,900)

• $11,190

• $1,900

• $(11,190)

Answer 1

Answer-1:

Option C is the correct answer.

Explanation:

The plane operating costs in the planning budget will be calculated taking actual quantity and budgeted cost per quantity.

The plane operating costs in the planning budget for February would be as follows:-

Plane Operating Cost
For the month	$ 57,010
(67 * $2636)	176,612
(273 * $7)	1,911
Total	235,533

Answer-2:

Option C is the correct answer.

Explanation:

Residual Income = Net operating income - Required Return × Average Operating Assets

  = $111,900 - ($1,100,000 * 10%)

= $1,900