Question

Dermody Snow Removal's cost formula for its vehicle operating cost is $2,980 per month plus $328 per snow-day. For the month of December, the company planned for activity of 22 snow-days, but the actual level of activity was 20 snow-days. The actual vehicle operating cost for the month was $10,490. The spending variance for vehicle operating cost in December would be closest to:

Answer 1

Answer: $950 Unfavorable

Explanation:

Following the information given in the question, the budgeted operating cost will be calculated as the addition of the fixed cost and the variable cost given and this will be:

= $2,980 + ($328 × Level of activity)

= $2980 + ($328 × 20)

= $2980 + $6560

= $9540

Since the actual operating cost is $10,490, then the Spending Variance for the vehicle operating cost will be:

= Flexible Budget - Actual Budget

= $9,540 - $10490

= $950 Unfavorable