Dermody Snow Removal's cost formula for its vehicle operating cost is $2,850 per month plus $317 per snow-day. For the month of December, the company planned for activity of 16 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $7,640. The spending variance for vehicle operating cost in December would be closest to:
A) $282 U
B) $282 F
C) $352 U
D) $352 F

Question

Quizplus · Accepted Answer

First, we need to calculate the total cost for December that Dermody Snow Removal had planned for using the given cost formula:
$2,850 + ($317 x 16) = $7,922

Next, we need to calculate the difference between the actual cost and the planned cost:
$7,640 - $7,922 = -$282

Since the actual cost is less than the planned cost, this is a favorable (or positive) variance. However, since the question is asking for the spending variance, we need to take the absolute value:
$282

Therefore, the answer is (C) $352 U, since this is the closest option to $282.

Dermody Snow Removal's Cost Formula for Its Vehicle Operating Cost