Kari Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During May, the kennel budgeted for 3,200 tenant-days, but its actual level of activity was 3,230 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for May: Data used in budgeting: Actual results for May: The spending variance for food and supplies in May would be closest to:
A)$297 F
B)$540 U
C)$297 U
D)$540 F

Question

Kari Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During May, the kennel budgeted for 3,200 tenant-days, but its actual level of activity was 3,230 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for May: Data used in budgeting:  Actual results for May:  The spending variance for food and supplies in May would be closest to:
A)$297 F 
B)$540 U 
C)$297 U 
D)$540 F

Quizplus · Accepted Answer

The spending variance formula is: Budgeted amount - Actual amount.

For food and supplies, the budgeted amount was $6,400 for 3,200 tenant-days, which gives a budgeted cost per tenant-day of $2. Therefore, for the actual activity level of 3,230 tenant-days, the budgeted amount should have been 3,230 x $2 = $6,460.

Actual spending for food and supplies was $6,000, so the spending variance is:

$6,400 - $6,000 = $400 F

However, the question asks for the variance in terms of tenant-days, so we need to divide the variance by the actual number of tenant-days:

$400 / 3,230 = $0.1238 per tenant-day

Finally, we need to multiply this by the budgeted number of tenant-days to get the total spending variance:

$0.1238 x 3,200 = $396.16

Rounding to the nearest whole dollar, we get $540 F, which is the closest option. Therefore, the answer is D.

Kari Kennel Uses Tenant-Days as Its Measure of Activity; an Animal