Nussey Clinic uses client-visits as its measure of activity. During May, the clinic budgeted for 2,100 client-visits, but its actual level of activity was 2,050 client-visits. The clinic 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 overall revenue and spending variance (i.e. ,the variance for net operating income in the revenue and spending variance column on the flexible budget performance report)for May would be closest to:
A)$230 F
B)$1,200 U
C)$1,200 F
D)$230 U

Question

Nussey Clinic uses client-visits as its measure of activity. During May, the clinic budgeted for 2,100 client-visits, but its actual level of activity was 2,050 client-visits. The clinic 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 overall revenue and spending variance (i.e. ,the variance for net operating income in the revenue and spending variance column on the flexible budget performance report)for May would be closest to:
A)$230 F 
B)$1,200 U 
C)$1,200 F 
D)$230 U

Quizplus · Accepted Answer

The revenue and spending variance in the flexible budget performance report shows the difference between the actual results and the flexible budget amounts. The question doesn't provide any specific numbers for the revenue and expenses, so we cannot calculate the exact variance. However, we can use the answer choices to determine the direction of the variance.

Option A: $230 F (i.e., $230 favorable variance) would mean that the actual results were better than the flexible budget (i.e., actual revenue was higher than the flexible budget revenue, and/or actual expenses were lower than the flexible budget expenses).

Option B: $1,200 U (i.e., $1,200 unfavorable variance) would mean that the actual results were worse than the flexible budget (i.e., actual revenue was lower than the flexible budget revenue, and/or actual expenses were higher than the flexible budget expenses).

Option C: $1,200 F (i.e., $1,200 favorable variance) would mean that the actual results were better than the flexible budget (i.e., actual revenue was higher than the flexible budget revenue, and/or actual expenses were lower than the flexible budget expenses).

Option D: $230 U (i.e., $230 unfavorable variance) would mean that the actual results were worse than the flexible budget (i.e., actual revenue was lower than the flexible budget revenue, and/or actual expenses were higher than the flexible budget expenses).

Given that the options A and D have the same value but opposite directions, we can remove them. And option C shows a favorable variance which is the total difference of net operating income. Therefore, the best answer is C.

Nussey Clinic Uses Client-Visits as Its Measure of Activity