Question

Rhed 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 December, the kennel budgeted for 4,200 tenant-days, but its actual level of activity was 4,150 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for December:

Data used in budgeting:

	Fixed element per month			Variable element per tenant-day
Revenue		-		$	34.90
Wages and salaries	$	3,200		$	8.70
Food and supplies		1,900			13.90
Facility expenses		9,200			5.40
Administrative expenses		7,200			0.60
Total expenses	$	21,500		$	28.60

Actual results for December:

Revenue	$	144,135
Wages and salaries	$	39,590
Food and supplies	$	58,505
Facility expenses	$	31,760
Administrative expenses	$	7,780

The activity variance for administrative expenses in December would be closest to:

Answer 1

Answer

• Flexible Budget Administrative expense = $ 7200 fixed + ($ 0.60 x 4150 actual tenant days)
  = 7200 + 2490
  = $ 9,690
• Planning Budget Administrative expense = $ 7200 fixed + ($ 0.60 x 4200 planned tenant days)
  = 7200 + 2520
  = $ 9,720
• Variance = $ 9720 – 9690
  = $ 30
• Flexible budget expense is LESS than Planned Budget = Favourable Variance
• Answer:
  $ 30 F