Question

Kirnon Clinic uses client-visits as its measure of activity. During July, the clinic budgeted for 3,550 client-visits, but its actual level of activity was 3,490 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting: Fixed element per month Variable element per client-visit Revenue - $ 39.70 Personnel expenses $ 35,700 $ 10.90 Medical supplies 1,700 7.70 Occupancy expenses 8,700 1.70 Administrative expenses 5,700 0.80 Total expenses $ 51,800 $ 21.10 The activity variance for net operating income in July would be closest to:

Multiple Choice $1,116 F $366 U $1,116 U $366 F

Answer 1

Activity variance $1,116 U
	Fixed element per month	Variable element perclient-visit
Revenue	-	$39.70
Personnel expenses	$35,700	$10.90
Medical supplies	$1,700	$7.70
Occupancy expenses	$8,700	$1.70
Administrative expenses	$5,700	$0.80
Total expenses	$51,800	$21.10
Revenue per client-visit	$39.70
Total variable expense per client-visit	$21.10
Contribution margin per client-visit	$18.60
Total fixed expense	$51,800
Planning budget ($18.60 × 3,550 − $56,600)	$14,230
Flexible budget ($18.60 × 3,490 − $56,600)	$13,114
Activity variance	$1,116
Because the flexible budget net operating income is less than the planning budget,
the variance is unfavorable (U)