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 $39,590 per month plus $2,649 per flight plus $4 per passenger. The company expected its activity in August to be 82 flights and 294 passengers, but the actual activity was 85 flights and 297 passengers. The actual cost for plane operating costs in August was $255,690.The plane operating costs in the flexible budget for August would be closest to:
A) $265,943
B) $255,690
C) $267,422
D) $257,984

Question

Quizplus · Accepted Answer

The correct answer is A because the flexible budget for plane operating costs in August would be $265,943. This is calculated by taking the fixed cost of $39,590 and adding the variable cost of $2,649 per flight and $4 per passenger. The variable cost for flights is $2,649 x 85 = $225,165. The variable cost for passengers is $4 x 297 = $1,188. The total variable cost is $225,165 + $1,188 = $226,353. The total cost is $39,590 + $226,353 = $265,943.

Standahl Air Uses Two Measures of Activity, Flights and Passengers