Question

Panda Clinic uses client-visits as its measure of activity. During October, the clinic budgeted for 4,300 client-visits, but its actual level of activity was 4,290 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for October:

Data used in budgeting:

	Fixed element per month			Variable element per client-visit
Revenue		-		$	37.40
Personnel expenses	$	31,500		$	12.40
Medical supplies		2,200			7.80
Occupancy expenses		9,600			3.90
Administrative expenses		7,900			0.40
Total expenses	$	51,200		$	24.50

Actual results for October:

Revenue	$	160,661
Personnel expenses	$	84,652
Medical supplies	$	36,512
Occupancy expenses	$	25,831
Administrative expenses	$	9,367

The spending variance for medical supplies in October would be closest to:

Answer 1

Spending variance is difference between flexible budget and actual results.

Flexible budget = budgeted cost*actual level of activity

Variable costs changes with change in levels of activity whereas fixed costs remains same at all levels of activity.

• Flexible budget for medical supplies= [$2,200+($7.80*4,290)]

                                                                     =$35,662

• Actual results = $36,512

The spending variance for medical supplies = Actual result-flexible budget results

=$36,512-$35,662

=$850 Unfavorable[ as the actual cost>flexible cost, variance is unfavorable]

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