Question

Borunda 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 $40,500 per month plus $2,898 per flight plus $13 per passenger. The company expected its activity in July to be 126 flights and 326 passengers, but the actual activity was 129 flights and 323 passengers. The actual cost for plane operating costs in July was $403,540. The activity variance for plane operating costs in July would be closest to:

Vanderhyde Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During May, the kennel budgeted for 3,460 tenant-days, but its actual level of activity was 3,516 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for May:

Data used in budgeting:

	Fixed element per month			Variable element per tenant-day
Revenue		−		$	52.00
Wages and salaries	$	4,600		$	8.80
Food and supplies		1,790			16.50
Facility expenses		12,900			7.90
Administrative expenses		8,150			3.60
Total expenses	$	27,440		$	36.80

Actual results for May:

Revenue	$	187,292
Wages and salaries	$	37,051
Foods and supplies	$	58,294
Facility expenses	$	39,536
Administrative expenses	$	20,478

The administrative expenses in the planning budget for May would be closest to:

Answer 1

Answer

• Administrative expenses in Planning Budget
  = ($ 3.60 per tenant day x 3460 planned tenant days) + $ 8150
  = (3.60 x 3460) + 8150
  = 12456 + 8150
  = $ 20,606
• Correct Answer = $ 20,606