Labombard Clinic uses client-visits as its measure of activity. During February, the clinic budgeted for 3,600 client-visits, but its actual level of activity was 3,650 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for February: Data used in budgeting: Actual results for February: The personnel expenses in the planning budget for February would be closest to:
A)$47,635
B)$47,340
C)$47,075
D)$46,430

Question

Labombard Clinic uses client-visits as its measure of activity. During February, the clinic budgeted for 3,600 client-visits, but its actual level of activity was 3,650 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for February: Data used in budgeting:  Actual results for February:  The personnel expenses in the planning budget for February would be closest to:
A)$47,635 
B)$47,340 
C)$47,075 
D)$46,430

Quizplus · Accepted Answer

Using the data provided in the table, we can calculate the following:

Flexible budget for personnel expenses = (Actual client visits) x (Variable cost per client-visit) + Fixed personnel expenses
= 3,650 x $12.50 + $29,625
= $47,500

Flexible budget variance = Flexible budget - Planning budget
= $47,500 - ($12.50 x 3,600 + $29,625)
= $47,500 - $47,250
= $250 unfavorable

Since the flexible budget variance is unfavorable, the actual personnel expenses must be higher than the planning budget. To find out the actual personnel expenses, we can use the flexible budget formula:

Actual personnel expenses = (Actual client visits) x (Variable cost per client-visit) + Fixed personnel expenses
= 3,650 x $12.50 + $29,625
= $47,500

Therefore, the closest choice to the actual personnel expenses is B) $47,340.

Labombard Clinic Uses Client-Visits as Its Measure of Activity