Groupe Air Uses Two Measures of Activity, Flights and Passengers

question 263

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 $48,840 per month plus $2,381 per flight plus $7 per passenger. The company expected its activity in October to be 63 flights and 293 passengers, but the actual activity was 61 flights and 298 passengers. The actual cost for plane operating costs in October was $199,070. The activity variance for plane operating costs in October would be closest to:

• A) $1,824 F
• B) $1,824 U
• C) $4,727 U
• D) $4,727 F

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Definitions:

Coinsurance Clause

A provision in insurance policies requiring the policyholder to bear a portion of the costs of a claim, encouraging insured parties to avoid excessive claims.

Replacement Value

The cost to replace an asset or property at its current value, without deduction for depreciation, at the time of loss.

Indemnity

A legal principle involving security or protection against financial liability or loss.

False Statements

Deliberately untrue assertions made by someone, which can sometimes be a legal offence if made in certain contexts.