Question

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 $39,890 per month plus $2,679 per flight plus $7 per passenger. The company expected its activity in August to be 85 flights and 297 passengers, but the actual activity was 88 flights and 300 passengers. The actual cost for plane operating costs in August was $257,190. The plane operating costs in the planning budget for August would be closest to:

Answer 1

Answer:

$269,705

Explanation:

The computation of plane operating costs is shown below:-

Plane Operating Cost = Fixed cost + (Variable cost per unit 1 × q1) + (Variable cost per unit 2 × q2)

= $39,890 + ($2,679 × 85) + ($7 × 300)

= $39,890 + $227,715 + $2,100

= $269,705

Therefore for computing the plane operating cost we simply applied the above formula.