Standahl 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 $39,990 per month plus $2,689 per flight plus $8 per passenger. The company expected its activity in August to be 86 flights and 298 passengers, but the actual activity was 89 flights and 301 passengers. The actual cost for plane operating costs in August was $257,690.The plane operating costs in the planning budget for August would be closest to:
A) $257,690
B) $273,628
C) $281,719
D) $262,310

Question

Quizplus · Accepted Answer

Using the cost formula, we can calculate the expected cost for plane operating costs in August:
$39,990 + ($2,689 x 86) + ($8 x 298) = $258,168

However, the actual cost for plane operating costs in August was $257,690. This means that the actual cost was slightly lower than expected, despite the higher activity levels.

To find the plane operating costs in the planning budget, we can use the same cost formula and plug in the expected activity levels:
$39,990 + ($2,689 x 89) + ($8 x 301) = $273,628

Therefore, the answer is choice B ($273,628).

Standahl Air Uses Two Measures of Activity, Flights and Passengers