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 $56,560 per month plus $2618 per fight plus $5 per pessenger. The company expected ts activity in February to be 63 fights and 254 passengers, but the actual activity was 62 fights and 255 pessengers. The actual cost for plene opeating costs in February was $218,820. The plane operating costs in the plenning budget for February would be closest to

Multiple Choice
A. $222,764
B. $222,349
C. $220,151
D. $218,820

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hamzatauseef hamzatauseef · Answer 1 · 2019-12-15T10:35:19+01:00

Answer:

A) $222,764

Explanation:

We first devise a formula for total operating costs

Operating costs = Fixed element + 2618x + 5y where,

x = flights and y = passengers

So using the formula gives us,

Operating costs = 56560 + 2618 (63) + 5(254)

= $222,764

We use the budgeted figures as we are calculating for the budget. For actual costs we can simply substitute actual figures in our formula above.

Hope that helps.

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