Ibsen Clinic uses client-visits as its measure of activity. During December, the clinic budgeted for 3,300 client-visits, but its actual level of activity was 3,340 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for December:Data used in budgeting: Actual results for December:
The net operating income in the flexible budget for December would be closest to:
A) $13,990
B) $14,762
C) $11,898
D) $12,188

Question

Ibsen Clinic uses client-visits as its measure of activity. During December, the clinic budgeted for 3,300 client-visits, but its actual level of activity was 3,340 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for December:Data used in budgeting:  Actual results for December:
 The net operating income in the flexible budget for December would be closest to:
A) $13,990 
B) $14,762 
C) $11,898 
D) $12,188

Quizplus · Accepted Answer

Using the formulas provided, the flexible budget for December can be calculated as follows:

Variable expenses:
Supplies: $1.86 x 3,340 = $6,218.40
Wages and salaries: $16.90 x 3,340 = $56,546
Rent: $2.54 x 3,340 = $8,485.60
Total variable expenses: $71,250

Fixed expenses:
Administration: $19,800
Depreciation: $4,400
Total fixed expenses: $24,200

Total expenses: $95,450

Net operating income: $178,200 - $95,450 = $82,750

The actual net operating income is $68,788, so the variance is -$13,962. Therefore, the flexible budget net operating income would be:

$68,788 + (-$13,962) = $54,826

The closest option to this answer is B) $14,762.

Ibsen Clinic Uses Client-Visits as Its Measure of Activity