Labombard Clinic uses client-visits as its measure of activity.During February, the clinic budgeted for 3, 600 client-visits, but its actual level of activity was 3, 650 client-visits.The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for February: Data used in budgeting: Actual results for February: The net operating income in the planning budget for February would be closest to:
A)$7, 382
B)$7, 800
C)$8, 425
D)$7, 589

Question

Labombard Clinic uses client-visits as its measure of activity.During February, the clinic budgeted for 3, 600 client-visits, but its actual level of activity was 3, 650 client-visits.The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for February: Data used in budgeting:  Actual results for February:  The net operating income in the planning budget for February would be closest to:
A)$7, 382 
B)$7, 800 
C)$8, 425 
D)$7, 589

Quizplus · Accepted Answer

Using the data provided, we can calculate the net operating income for the planning budget and actual results.

Net Operating Income = Revenue - Variable Expenses - Fixed Expenses

For the planning budget:
Revenue = 3,600 * $100 = $360,000
Variable Expenses = 3,600 * $38 = $136,800
Fixed Expenses = $199,000
Net Operating Income = $360,000 - $136,800 - $199,000 = $24,200

For the actual results:
Revenue = 3,650 * $95 = $346,750
Variable Expenses = 3,650 * $40 = $146,000
Fixed Expenses = $199,000
Net Operating Income = $346,750 - $146,000 - $199,000 = $1,750

The difference between the two net operating incomes is due to the difference in revenue and variable expenses. The actual revenue was lower than expected, and the actual variable expenses were higher than expected.

Therefore, the best choice for the net operating income in the planning budget for February is B) $7,800.

Labombard Clinic Uses Client-Visits as Its Measure of Activity