Groupe Air Uses Two Measures of Activity, Flights and Passengers

question 431

Multiple Choice

Groupe 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 $36,270 per month plus $2,064 per flight plus $1 per passenger. The company expected its activity in October to be 87 flights and 237 passengers, but the actual activity was 86 flights and 242 passengers. The actual cost for plane operating costs in October was $211,010. The activity variance for plane operating costs in October would be closest to:

• A) $2,059 U
• B) $5,065 F
• C) $2,059 F
• D) $5,065 U

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Definitions:

Economic Outcome

The result of economic activities, often measured by metrics such as GDP growth, unemployment rates, and inflation.

Marginal Rate Of Technical Substitution

The rate at which one input can be reduced per additional unit of another input, while maintaining the same level of output.

Efficiency

The optimal use of resources to achieve the desired ends, minimizing waste and maximizing output.

General Equilibrium Prices

The set of prices for all goods and services in an economy at which supply and demand across all markets are in balance.