Elizarraras 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 $39,820 per month plus $2,938 per flight plus $8 per passenger. The company expected its activity in June to be 64 flights and 229 passengers, but the actual activity was 66 flights and 225 passengers. The actual cost for plane operating costs in June was $234,570. The plane operating costs in the planning budget for June would be closest to:
A) $229,684
B) $227,462
C) $234,570
D) $235,528

Question

Quizplus · Accepted Answer

To solve for the planning budget, we need to use the cost formula given:
Total cost = $39,820 + ($2,938 x Number of flights) + ($8 x Number of passengers)

Substituting the expected activity levels, we get:
Total cost = $39,820 + ($2,938 x 64) + ($8 x 229) = $229,684

Therefore, option A is the closest to the plane operating costs in the planning budget for June.

Elizarraras Air Uses Two Measures of Activity, Flights and Passengers