Question

Mondo Snow Removal's cost formula for its vehicle operating cost is $1,620 per month plus $465 per snow-day. For the month of January, the company planned for activity of 15 snow-days, but the actual level of activity was 20 snow-days. The actual vehicle operating cost for the month was $10,400. The activity variance for vehicle operating cost in January would be closest to: 

• $1,805U 

• $1,805F 

• $2,3250 

• $2,325F

Answer 1

Solution:

The correct option is (C) $2,325U

Reason:

Activity Variance = (Standard Activity Days – Actual Activity Days) * Standard Rate per day

                         = (15 Days – 20 Days) * $465

                         = (–5) * $465

                         = $2,325U