Dermody Snow Removal's cost formula for its vehicle operating cost is $3,010 per month plus $331 per snow-day. For the month of December, the company planned for activity of 13 snow-days, but the actual level of activity was 15 snow-days. The actual vehicle operating cost for the month was $7,585. The spending variance for vehicle operating cost in December would be closest to:
A) $272 U
B) $272 F
C) $390 F
D) $390 U

Question

Quizplus · Accepted Answer

First, we need to calculate the expected cost for vehicle operating cost based on the planned activity level:
Expected cost = $3,010 + ($331 x 13) = $7,483

Then, we can calculate the spending variance:
Spending variance = Actual cost - Expected cost
= $7,585 - $7,483
= $102 F

However, this answer is not one of the answer choices. To find the closest answer choice, we need to calculate the flexible budget variance:
Flexible budget variance = (Actual activity level - Planned activity level) x Cost per unit of activity
= (15 - 13) x $331
= $662 F

Finally, we can calculate the total variance:
Total variance = Spending variance + Flexible budget variance
= $102 F + $662 F
= $760 F

To find the closest answer choice, we need to round the total variance to the nearest $10. Therefore, the spending variance for vehicle operating cost in December would be closest to $390 F (choice C).

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