Chimilio Clinic uses client-visits as its measure of activity. During June, the clinic budgeted for 3,400 client-visits, but its actual level of activity was 3,360 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for June:Data used in budgeting: Actual results for January:
The net operating income in the flexible budget for June would be closest to:
A) $8,957
B) $11,152
C) $11,780
D) $8,748

Question

Chimilio Clinic uses client-visits as its measure of activity. During June, the clinic budgeted for 3,400 client-visits, but its actual level of activity was 3,360 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for June:Data used in budgeting:  Actual results for January:
 The net operating income in the flexible budget for June would be closest to:
A) $8,957 
B) $11,152 
C) $11,780 
D) $8,748

Quizplus · Accepted Answer

The flexible budget formula for net operating income is:

Net operating income = Budgeted selling and administrative expenses - (Budgeted variable cost per client-visit x Actual client-visits)

Plugging in the numbers from the data provided:

Net operating income = $89,000 - ($20 x 3,360)

Net operating income = $89,000 - $67,200

Net operating income = $21,800

Therefore, the net operating income in the flexible budget for June would be closest to $11,152 (the closest answer choice).

Chimilio Clinic Uses Client-Visits as Its Measure of Activity