Gershon Air Uses Two Measures of Activity, Flights and Passengers

question 289

Multiple Choice

Gershon 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 $38,720 per month plus $2,061 per flight plus $9 per passenger. The company expected its activity in June to be 76 flights and 238 passengers, but the actual activity was 75 flights and 239 passengers. The actual cost for plane operating costs in June was $196,310. The spending variance for plane operating costs in June would be closest to:

• A)$864 F
• B)$1,188 U
• C)$1,188 F
• D)$864 U

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Definitions:

Synergy Value

The additional value created by combining two or more assets or businesses, which is greater than the sum of their separate values.

Merger Premium

The additional amount an acquiring company pays over the market value of the shares to purchase another company.

Equity-Financed

Pertains to the method of funding a business through selling shares to investors, thereby increasing ownership equity.

Incremental Value

The additional value created by undertaking a specific project or action, measured by the difference in a firm's value with and without the undertaking.