Roye 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 September, the kennel budgeted for 3,300 tenant-days, but its actual level of activity was 3,330 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for September:

Data used in budgeting:
Actual results for September:
-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 September would be closest to:
A)$3,200 F
B)$3,470 F
C)$3,200 U
D)$3,470 U

Question

Roye 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 September, the kennel budgeted for 3,300 tenant-days, but its actual level of activity was 3,330 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for September:

Data used in budgeting:
 Actual results for September: 
-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 September would be closest to:
A)$3,200 F 
B)$3,470 F 
C)$3,200 U 
D)$3,470 U

Quizplus · Accepted Answer

The revenue variance can be calculated as actual revenue - flexible budget revenue. From the table, the actual revenue for September is $33,700, and the flexible budget revenue is $32,000. Thus, the revenue variance is $33,700 - $32,000 = $1,700 U (unfavorable).

The spending variance can be calculated as actual expenses - flexible budget expenses. From the table, the actual expenses for September is $32,700, and the flexible budget expenses is $30,000. Thus, the spending variance is $32,700 - $30,000 = $2,700 U (unfavorable).

The net operating income variance can be calculated as actual net operating income - flexible budget net operating income. From the table, the actual net operating income for September is $1,000 (i.e., actual revenue of $33,700 - actual expenses of $32,700), and the flexible budget net operating income is $2,470 (i.e., flexible budget revenue of $32,000 - flexible budget expenses of $30,000). Thus, the net operating income variance is $1,000 - $2,470 = $1,470 U (unfavorable).

Therefore, the overall revenue and spending variance for September is the sum of the revenue variance ($1,700 U) and the spending variance ($2,700 U), which is $1,700 U + $2,700 U = $4,400 U (unfavorable). However, the question asks for the variance in net operating income, which is $1,470 U (unfavorable). The answer is therefore D: $3,470 U.

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