Hirons 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 $57,440 per month plus $2,962 per flight plus $15 per passenger. The company expected its activity in November to be 83 flights and 255 passengers, but the actual activity was 86 flights and 257 passengers. The actual cost for plane operating costs in November was $305,490. The spending variance for plane operating costs in November would be closest to:
A) $1,621 U
B) $10,537 U
C) $10,537 F
D) $1,621 F

Question

Quizplus · Accepted Answer

First, let's calculate the expected cost using the cost formula provided:
$57,440 + ($2,962 x 83) + ($15 x 255) = $292,295

To find the spending variance, we compare the expected cost to the actual cost:
$305,490 - $292,295 = $13,195

Since the actual cost is higher than the expected cost, the spending variance is unfavorable. Therefore, the answer is C ($10,537 F).

Hirons Air Uses Two Measures of Activity, Flights and Passengers