Question

Paulis Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During February, the kennel budgeted for 2,500 tenant-days, but its actual level of activity was 2,480 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for February:

Data used in budgeting:

	Fixed element per month			Variable element per tenant-day
Revenue		-		$	35.30
Wages and salaries	$	2,500		$	5.90
Food and supplies		400			13.80
Facility expenses		8,900			3.40
Administrative expenses		7,800			0.40
Total expenses	$	19,600		$	23.50

Actual results for February:

Revenue	$	85,654
Wages and salaries	$	16,992
Food and supplies	$	33,084
Facility expenses	$	16,682
Administrative expenses	$	8,732

The activity variance for net operating income in February would be closest to:

Garrison 16e Rechecks 2018-06-07

Multiple Choice

• $236 U

• $264 F

• $236 F

• $264 U

Answer 1

Ans.	Option   a     $236 U
	Calculations:
	Sales Activity Variance Report
		Flexible budget	Activity Variance		Planning budget
	Tenant-days	2,480			2,500
	Revenue (a)	$87,544	$706	U	$88,250
	Expenses:
	Wages and salaries	$17,132	$118	F	$17,250
	Food and supplies	$34,624	$276	F	$34,900
	Facility expenses	$17,332	$68	F	$17,400
	Administrative expenses	$8,792	$8	F	$8,800
	Total expenses (b)	$77,880	$470	F	$78,350
	Net operating income (a-b)	$9,664	$236	U	$9,900
	Calculations of Planning budget:
		Calculations	Planning budget:
	Tenant-days	2,500
	Revenue	2,500 * $35.30	$88,250
	Expenses:
	Wages and salaries	2,500 + (2,500 * $5.90)	$17,250
	Food and supplies	400 + (2,500 * $13.80)	$34,900
	Facility expenses	8,900 + (2,500 * $3.40)	$17,400
	Administrative expenses	7,800 + (2,500 * $0.40)	$8,800
	Calculations of Flexible budget:
		Calculations	Flexible budget:
	Tenant-days	2,480
	Revenue	2,480 * $35.30	$87,544
	Expenses:
	Wages and salaries	2,500 + (2,480 * $5.90)	$17,132
	Food and supplies	400 + (2,480 * $13.80)	$34,624
	Facility expenses	8,900 + (2,480 * $3.40)	$17,332
	Administrative expenses	7,800 + (2,480 * $0.40)	$8,792
	*Flexible budget is prepared on the basis of actual Number of parties.
	*Difference =   Flexible budget - Planning
	*Increase in costs decrease in income / revenue from Planning to Flexible budget   = Unfavorable.
	*Decrease in costs increase in income / revenue from Planning to Flexible budget   = Favorable.