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29 August, 02:15

Mondo Snow Removal's cost formula for its vehicle operating cost is $1,300 per month plus $621 per snow-day. For the month of January, the company planned for activity of 20 snow-days, but the actual level of activity was 23 snow-days. The actual vehicle operating cost for the month was $15,060. The activity variance for vehicle operating cost in January would be closest to:

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  1. 29 August, 03:47
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    The correct answer is $1,863 (U).

    Explanation:

    According to the scenario, computation of the given data are as follows:

    Planned Activity = 20 days

    Actual activity days = 23 days

    Contribution margin = $621

    Operating cost = - $15,060

    So, we can calculate the activity variance by using following formula:

    Activity Variance = (Planned activity days - Actual activity days) * Contribution margin

    By putting the value, we get

    Activity variance = (20 - 23) * $621

    = - 3 * $621

    = - $1,863 (Negative shows unfavorable)

    = $1,863 (U)
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