Tosta 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 2,100 tenant-days, but its actual level of activity was 2,050 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for May:
-The net operating income in the flexible budget for May would be closest to:
A) $9,140
B) $8,420
C) $11,626
D) $12,200

Question

Tosta 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 2,100 tenant-days, but its actual level of activity was 2,050 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for May: 
-The net operating income in the flexible budget for May would be closest to:
A) $9,140 
B) $8,420 
C) $11,626 
D) $12,200

Quizplus · Accepted Answer

Using the flexible budget formula, we can calculate the expected total cost for 2,050 tenant-days as follows: 
Variable costs per tenant-day = $14.50 + $1.60 + $1.00 = $17.10
Flexible budget for 2,050 tenant-days:
Total variable costs = 2,050 x $17.10 = $35,055
Total fixed costs = $12,930
Total flexible budget = $47,985
The actual results for May were: 
Total variable costs = $34,400
Total fixed costs = $12,930
Total actual cost = $47,330
Net operating income = $55,000 - $47,330 = $7,670
Therefore, the net operating income in the flexible budget for May would be approximately $8,420 ($7,670 + $750 favorable variance in variable costs).

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