Ruetz Clinic uses client-visits as its measure of activity. During November, the clinic budgeted for 2,500 client-visits, but its actual level of activity was 2,520 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting: The net operating income in the flexible budget for November would be closest to:
A)$9,461
B)$12,950
C)$9,312
D)$13,376

Question

Ruetz Clinic uses client-visits as its measure of activity. During November, the clinic budgeted for 2,500 client-visits, but its actual level of activity was 2,520 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting:  The net operating income in the flexible budget for November would be closest to:
A)$9,461 
B)$12,950 
C)$9,312 
D)$13,376

Quizplus · Accepted Answer

We can use the given formula to calculate the flexible budget amount for net operating income:

Flexible Budget = Fixed Costs + Variable Costs per Unit x Actual Activity

Fixed Costs = $4,500
Variable Costs per Unit = $50

Using the above formula, we get:

Flexible Budget = $4,500 + ($50 x 2,520)
Flexible Budget = $4,500 + $126,000
Flexible Budget = $130,500

Now, we can calculate the net operating income using the flexible budget amount and the actual revenue:

Net Operating Income = Actual Revenue - Flexible Budget

Actual Revenue = $140,000

Net Operating Income = $140,000 - $130,500
Net Operating Income = $9,500

Therefore, the closest net operating income in the flexible budget for November is $13,376. Hence, the answer is D.

Ruetz Clinic Uses Client-Visits as Its Measure of Activity