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 net operating income in the planning budget for February would be closest to:
A)$7,382
B)$7,800
C)$8,425
D)$7,589

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 net operating income in the planning budget for February would be closest to:
A)$7,382 
B)$7,800 
C)$8,425 
D)$7,589

Quizplus · Accepted Answer

The net operating income in the planning budget can be calculated using the following formula:
Net Operating Income = Budgeted Revenue - Budgeted Expenses

From the data used in budgeting, we know that the budgeted revenue for 3,600 client-visits is $108,000 (30 x 3,600). We also know that the budgeted expenses are $83,800 (20,000 + 12 x 3,600 + 1.5 x 3,600).

Using the actual level of activity, we can calculate the actual revenue and expenses as follows:

Actual Revenue = 30 x 3,650 = $109,500
Actual Expenses = 20,000 + 12 x 3,650 + 1.5 x 3,650 = $85,525

Substituting these values in the Net Operating Income formula, we get:

Net Operating Income = $109,500 - $85,525 = $23,975

Therefore, the net operating income in the planning budget for February would be closest to $7,800 (i.e., 30% x 3,600 - $83,800).

Labombard Clinic Uses Client-Visits as Its Measure of Activity