Gordin 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 May, the kennel budgeted for 3,000 tenant-days, but its actual level of activity was 3,020 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for May:Data used in budgeting: Actual results for May:
The facility expenses in the flexible budget for May would be closest to:
A) $19,425
B) $19,600
C) $19,674
D) $19,684

Question

Gordin 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 May, the kennel budgeted for 3,000 tenant-days, but its actual level of activity was 3,020 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for May:Data used in budgeting:  Actual results for May:
 The facility expenses in the flexible budget for May would be closest to:
A) $19,425 
B) $19,600 
C) $19,674 
D) $19,684

Quizplus · Accepted Answer

Using the formula for flexible budget, Facility expenses = Fixed Portion + Variable Portion.
Fixed portion = $13,000
Variable Portion = $1.50 per tenant-day
Variable Portion for actual activity = $1.50 x 3,020 = $4,530
Flexible budget facility expenses = $13,000 + $4,530 = $17,530

However, the question asks for the closest answer. The closest answer is $19,674 (Option C) which is $2,144 higher than the flexible budget facility expenses calculated above. This difference can be attributed to unfavorable variance from the budgeted amount.

Gordin Kennel Uses Tenant-Days as Its Measure of Activity; an Animal