Glassing Clinic uses client-visits as its measure of activity. During September,
ID: 2561355 • Letter: G
Question
Glassing Clinic uses client-visits as its measure of activity. During September, the clinic budgeted for 4,160 client-visits, but its actual level of activity was 4,120 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting:
The activity variance for net operating income in September would be closest to:
a. $348 U
b. $3,508 U
c. $3,508 F
d. $348 F
Fixed element per month Variable element per client-visit Revenue $ 22.10 Personnel expenses $ 21,850 $ 5.70 Medical supplies 1,865 4.50 Occupancy expenses 4,210 2.10 Administrative expenses 3,035 1.10 Total expenses $ 30,960 $ 13.40Explanation / Answer
Answer:
activity variance for net operating income =A). $348 U
Working notes for the above answer is as under
Revenue
22.1
Less:
total variable cost
13.4
Contribution margin
8.7
Total fixed expanses
30960
Planning Budget
(4160*8.7-30960)
5232
Flexible Budget
(4120*8.7-30960)
4884
Activity Variance
348 U
activity variance for net operating income is $348 Unfavorable because flexible budgeted net operating income is less then Planning budget
Revenue
22.1
Less:
total variable cost
13.4
Contribution margin
8.7
Total fixed expanses
30960
Planning Budget
(4160*8.7-30960)
5232
Flexible Budget
(4120*8.7-30960)
4884
Activity Variance
348 U
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