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6 January, 04:13

Canniff 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 $56,960 per month plus $2,634 per flight plus $6 per passenger. The company expected its activity in February to be 67 flights and 270 passengers, but the actual activity was 66 flights and 271 passengers. The actual cost for plane operating costs in February was $231,250. The plane operating costs in the planning budget for February would be closest to:

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  1. 6 January, 06:01
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    Actual Operating costs $231,250

    Planned Operating Costs budgeted = $ 235058

    Planned Operating Costs at actual level = $ 232430

    Explanation:

    The Planned costs are the costs estimated at the planned level of activity.

    The actual costs are costs that actually occur.

    But flexible costs are those which are planned (determined) at actual level of activity.

    Canniff Air

    Actual Planned

    Operating costs $231,250

    The cost formula for plane operating costs is $56,960 per month plus $2,634 per flight plus $6 per passenger.

    Planned Operating Costs = $56,960 + 2634 * 67 flights + 6*270 passengers

    = $ 56960 + 176478 + 1620

    = $ 235058

    Actual Operating Costs = $56,960 + 2634 * 66 flights + 6*271 passengers

    = $ 56960 + 173844 + 1626

    = $ 232430

    We put the values in the given formula to obtains these costs both planned and actual.
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