Ishibashi Snow Removal's cost formula for its vehicle operating cost is $1,240 per month plus $337 per snow-day. For the month of February, the company planned for activity of 17 snow-days, but the actual level of activity was 12 snow-days. The actual vehicle operating cost for the month was $5,140. The spending variance for vehicle operating cost in February would be closest to:
A)$144 U
B)$1,829 U
C)$1,829 F
D)$144 F

Question

Quizplus · Accepted Answer

The spending variance is calculated as the difference between the actual cost and the flexible budget cost. The flexible budget cost for 12 snow-days is $1,240 + ($337 * 12) = $5,284. The actual cost was $5,140, so the variance is $5,284 - $5,140 = $144, which is favorable (F) because the actual cost was less than the budgeted cost.

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