Zelenka Clinic uses client-visits as its measure of activity. During June, the clinic budgeted for 2,700 client-visits, but its actual level of activity was 2,710 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting for June: The administrative expenses in the planning budget for June would be closest to:
A)$5,671
B)$5,511
C)$5,531
D)$5,670

Question

Zelenka Clinic uses client-visits as its measure of activity. During June, the clinic budgeted for 2,700 client-visits, but its actual level of activity was 2,710 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting for June:  The administrative expenses in the planning budget for June would be closest to:
A)$5,671 
B)$5,511 
C)$5,531 
D)$5,670

Quizplus · Accepted Answer

Using the high-low method, we can calculate the variable administrative cost per client-visit:

Variable cost per client-visit = (Actual cost at highest activity level - Actual cost at lowest activity level) / (Highest activity level - Lowest activity level)
Variable cost per client-visit = ($27,700 - $26,930) / (2,710 - 2,670)
Variable cost per client-visit = $770 / 40
Variable cost per client-visit = $19.25

To calculate the total administrative expenses in the planning budget, we need to add the fixed administrative expenses to the variable administrative expenses:

Fixed administrative expenses = Total administrative expenses - (Variable cost per client-visit x Number of client-visits)
$26,910 = Total administrative expenses - ($19.25 x 2,700)

Total administrative expenses = $26,910 + ($19.25 x 2,710)
Total administrative expenses = $78,777.50

Therefore, the administrative expenses in the planning budget for June would be closest to $5,670 (rounded to the nearest dollar). Option D is the correct answer.

Zelenka Clinic Uses Client-Visits as Its Measure of Activity