Asked by Benny Csillag on Jul 20, 2024
Verified
Dermody Snow Removal's cost formula for its vehicle operating cost is $2,850 per month plus $317 per snow-day. For the month of December, the company planned for activity of 16 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $7,640. The spending variance for vehicle operating cost in December would be closest to:
A) $282 U
B) $282 F
C) $352 U
D) $352 F
Vehicle Operating Cost
The total expense associated with keeping a vehicle running, including fuel, maintenance, insurance, and depreciation.
Spending Variance
The difference between the actual amount spent and the budgeted amount for a particular expense category in a specific period.
- Delve into the variances of flexible budgets, including those associated with spending and activity divergences.
- Evaluate the efficiency of resource utilization in various operational contexts.
Verified Answer
GA
GERALDINE ARANETAJul 21, 2024
Final Answer :
C
Explanation :
First, we need to calculate the total cost for December that Dermody Snow Removal had planned for using the given cost formula:
$2,850 + ($317 x 16) = $7,922
Next, we need to calculate the difference between the actual cost and the planned cost:
$7,640 - $7,922 = -$282
Since the actual cost is less than the planned cost, this is a favorable (or positive) variance. However, since the question is asking for the spending variance, we need to take the absolute value:
$282
Therefore, the answer is (C) $352 U, since this is the closest option to $282.
$2,850 + ($317 x 16) = $7,922
Next, we need to calculate the difference between the actual cost and the planned cost:
$7,640 - $7,922 = -$282
Since the actual cost is less than the planned cost, this is a favorable (or positive) variance. However, since the question is asking for the spending variance, we need to take the absolute value:
$282
Therefore, the answer is (C) $352 U, since this is the closest option to $282.
Learning Objectives
- Delve into the variances of flexible budgets, including those associated with spending and activity divergences.
- Evaluate the efficiency of resource utilization in various operational contexts.
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