Leaphart 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 2,800 tenant-days, but its actual level of activity was 2,840 tenant-days. The kennel has provided the following data concerning the formulas to be used in its budgeting: The administrative expenses in the planning budget for May would be closest to:
A)$7,026
B)$6,927
C)$7,336
D)$7,320

Question

Leaphart 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 2,800 tenant-days, but its actual level of activity was 2,840 tenant-days. The kennel has provided the following data concerning the formulas to be used in its budgeting:  The administrative expenses in the planning budget for May would be closest to:
A)$7,026 
B)$6,927 
C)$7,336 
D)$7,320

Quizplus · Accepted Answer

Using the high-low method, we can determine that the variable cost per tenant-day is $7.30 ($26,180 / 3,580 tenant-days).

To find the total administrative expenses in the planning budget, we can use the following formula:

Total expenses = Fixed expenses + (Variable cost per unit x Level of activity)

Plugging in the numbers, we get:

Total expenses = $16,200 + ($7.30 x 2,800)
Total expenses = $16,200 + $20,440
Total expenses = $36,640

However, since the actual level of activity was 2,840 tenant-days, we need to adjust the total expenses accordingly:

Adjusted expenses = Fixed expenses + (Variable cost per unit x Actual level of activity)
Adjusted expenses = $16,200 + ($7.30 x 2,840)
Adjusted expenses = $16,200 + $20,692
Adjusted expenses = $36,892

Therefore, the closest answer choice is D) $7,320.

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