Asked by Massiel Toribio Peralta on Jul 09, 2024
Verified
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 $39,990 per month plus $2,689 per flight plus $8 per passenger. The company expected its activity in August to be 86 flights and 298 passengers, but the actual activity was 89 flights and 301 passengers. The actual cost for plane operating costs in August was $257,690.The plane operating costs in the planning budget for August would be closest to:
A) $257,690
B) $273,628
C) $281,719
D) $262,310
Plane Operating Costs
The expenses related to operating an aircraft, including maintenance, fuel, and crew expenses.
Planning Budget
A planning budget is formulated prior to a budget period and is based on management's objectives, serving as a guide for financial planning and performance evaluation.
Flights
Refers to scheduled air travel trips or could imply the launching or operation of aircraft.
- Investigate how varying levels of activity affect budget formulation and performance assessments.
- Understand the diverse classifications of expenditures (fixed, variable) relevant to budgeting and the preparation of performance reports.
Verified Answer
$39,990 + ($2,689 x 86) + ($8 x 298) = $258,168
However, the actual cost for plane operating costs in August was $257,690. This means that the actual cost was slightly lower than expected, despite the higher activity levels.
To find the plane operating costs in the planning budget, we can use the same cost formula and plug in the expected activity levels:
$39,990 + ($2,689 x 89) + ($8 x 301) = $273,628
Therefore, the answer is choice B ($273,628).
Learning Objectives
- Investigate how varying levels of activity affect budget formulation and performance assessments.
- Understand the diverse classifications of expenditures (fixed, variable) relevant to budgeting and the preparation of performance reports.
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