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:

Question

Jovani Ortega

Business

9 October, 20:41

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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Answers (1)

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Maci Cervantes · Answer 1

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)