Laboe 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 February, the kennel budgeted for 2,900 tenant-days, but its actual level of activity was 2,940 tenant-days. The kennel has provided the following data concerning the formulas to be used in its budgeting:
-The net operating income in the planning budget for February would be closest to:
A) $7,191
B) $7,391
C) $7,900
D) $8,260

Question

Laboe 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 February, the kennel budgeted for 2,900 tenant-days, but its actual level of activity was 2,940 tenant-days. The kennel has provided the following data concerning the formulas to be used in its budgeting: 
-The net operating income in the planning budget for February would be closest to:
A) $7,191 
B) $7,391 
C) $7,900 
D) $8,260

Quizplus · Accepted Answer

First, we need to calculate the flexible budget, using the formula:
Flexible Budget = Budgeted Amount + (Budgeted Amount x Actual Change in Activity)
Using the data provided, we can calculate the flexible budget as follows:
Flexible Budget = $13,300 + ($20 x 40) = $13,300 + $800 = $14,100
Next, we need to calculate the actual net operating income, using the formula:
Actual NOI = Actual Revenue - Actual Expenses
Using the data provided, we can calculate the actual net operating income as follows:
Actual Revenue = $19 x 2,940 = $55,860
Actual Expenses = $13,800 + ($8 x 2,940) = $36,420
Actual NOI = $55,860 - $36,420 = $19,440
Finally, we need to calculate the budgeted net operating income, which is the net operating income in the planning budget:
Budgeted NOI = Budgeted Revenue - Budgeted Expenses
Using the data provided, we can calculate the budgeted net operating income as follows:
Budgeted Revenue = $19 x 2,900 = $55,100
Budgeted Expenses = $13,300 + ($8 x 2,900) = $36,500
Budgeted NOI = $55,100 - $36,500 = $18,600
Therefore, the net operating income in the planning budget for February would be closest to $7,900 (which is $18,600/$14,100 x Actual NOI).

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