Asked by Rauph Adeoba on Jul 20, 2024
Verified
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
Spending Variance
The difference between the actual amount spent and the budgeted amount, often analyzed in budgeting and cost management.
Plane Operating Costs
are expenses related to operating aircraft, including fuel, maintenance, crew salaries, and airport fees.
Measures of Activity
Metrics used to quantify the level of operations or processes within an organization, often related to productivity or efficiency.
- Calculate the disparities in spending among distinct categories of expenses.
- Inspect the distinction between estimated financial plans and actual expense records.
- Identify favorable and unfavorable variances and their implications for management.
Verified Answer
$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).
Learning Objectives
- Calculate the disparities in spending among distinct categories of expenses.
- Inspect the distinction between estimated financial plans and actual expense records.
- Identify favorable and unfavorable variances and their implications for management.
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