Question

Bartosiewicz Clinic uses client-visits as its measure of activity. During January, the clinic budgeted for 4,500 client-visits, but its actual level of activity was 4,480 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for January: Data used in budgeting: Fixed element per month Variable element per client-visit Revenue - $ 36.50 Personnel expenses $ 28,500 $ 12.50 Medical supplies 1,400 6.50 Occupancy expenses 10,400 1.00 Administrative expenses 7,500 0.10 Total expenses $ 47,800 $ 20.10 Actual results for January: Revenue $ 129,000 Personnel expenses $ 70,010 Medical supplies $ 21,010 Occupancy expenses $ 13,180 Administrative expenses $ 7,430 The activity variance for net operating income in January would be closest to: Multiple Choice $328 F $328 U $8,630 U $8,630 F

Answer 1

• Activity Variance = Difference between Planning (Static) Budget data and Flexible Budget Data
• Net Income Activity Variance is:

Favourable, if Flexible budget net income is MORE than Planning Budget Net Income, and

Unfavourable, if Flexible Budget net income is LESS than Planning Budget Net Income

• Working

	Planning Budget		Flexible Budget
Sales revenues	=4500 units x $ 36.5	$      164,250.00	$     163,520.00	=4480 units x $ 36.5
Expenses:
Personnel Expenses	=28500+(4500 units x $ 12.5)	$         84,750.00	$       84,500.00	=28500+(4480 units x $ 12.5)
Medical Supplies	=1400+(4500 units x $ 6.5)	$         30,650.00	$       30,520.00	=1400+(4480 units x $ 6.5)
Occupancy expenses	=10400+(4500 units x $ 1)	$         14,900.00	$       14,880.00	=10400+(4480 units x $ 1)
Administrative expenses	=7500+(4500 units x $ 0.1)	$           7,950.00	$         7,948.00	=7500+(4480 units x $ 0.1)
Total Expense	=4500 units x $ 36.5	$      138,250.00	$     137,848.00	=4480 units x $ 36.5
Net Income		$         26,000.00	$       25,672.00

• Net Income Variance = 26000 – 25672 = $ 328

Variance is Unfavourable because Flexible Budget Net Income is LESS than Planning Budget Net Income

• Correct Answer = Option #2: $ 328 U