Spraque Air Uses Two Measures of Activity, Flights and Passengers

question 266

Multiple Choice

Spraque 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 $40,520 per month plus $2,733 per flight plus $11 per passenger. The company expected its activity in June to be 71 flights and 207 passengers, but the actual activity was 70 flights and 205 passengers. The actual cost for plane operating costs in June was $239,580.
-The spending variance for plane operating costs in June would be closest to:

• A) $2,740 U
• B) $5,495 U
• C) $5,495 F
• D) $2,740 F

---

Definitions:

Price Skimming

A pricing strategy where a firm charges the highest initial price that customers will pay for a new product or service, then gradually lowers the price to attract more price-sensitive consumers.

Penetration Pricing

A marketing strategy where the initial price of a product is set lower than the eventual market price to attract new customers and gain market share.