Lofty 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 $39,590 per month plus $2,649 per flight plus $4 per passenger. The company expected its activity in August to be 82 flights and 294 passengers, but the actual activity was 85 flights and 297 passengers. The actual cost for plane operating costs in August was $255,690. The activity variance for plane operating costs in August would be closest to: (F: favorable and U: unfavorable)

$7,959 U

Explanation:

Calculation to determine what The activity variance for plane operating costs in August would be closest to

First step is to calculate the Planing budget

Planing budget =$39,590+$2,649*82+$4+294

Planing budget =$39,590+$217,218+$1,176

Planing budget =$257,984

Second step is to calculate the Flexible budget

Flexible budget=$39,590+$2,649*85+$4*297

Flexible budget=$39,590+$225,165+$1,188

Flexible budget=$265,943

Now let calculate the Activity Variance using this formula

Activity Variance=Planing budget-Flexible budget

Let plug in the formula

Activity Variance=$257,984-$265,943

Activity Variance=$7,959 U

Therefore The activity variance for plane operating costs in August would be closest to $7,959 U

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