Wales 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 February,the kennel budgeted for 2,700 tenant-days,but its actual level of activity was 2,730 tenant-days.The kennel has provided the following data concerning the formulas to be used in its budgeting: The net operating income in the planning budget for February would be closest to:

Question

Wales 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 February,the kennel budgeted for 2,700 tenant-days,but its actual level of activity was 2,730 tenant-days.The kennel has provided the following data concerning the formulas to be used in its budgeting:  The net operating income in the planning budget for February would be closest to:

Quizplus · Accepted Answer

The formula for net operating income in the planning budget is:
Net Operating Income = Budgeted Revenue - Budgeted Expenses

From the data given, we know:
Budgeted Tenant-Days = 2,700
Actual Tenant-Days = 2,730
Budgeted Revenue Per Tenant-Day = $33
Budgeted Variable Expense Per Tenant-Day = $16
Budgeted Fixed Expenses = $9,000

Using this information, we can calculate the budgeted revenue and budgeted variable expenses:
Budgeted Revenue = Budgeted Tenant-Days x Budgeted Revenue Per Tenant-Day = 2,700 x $33 = $89,100
Budgeted Variable Expenses = Budgeted Tenant-Days x Budgeted Variable Expense Per Tenant-Day = 2,700 x $16 = $43,200

Plugging these values into the net operating income formula:
Net Operating Income = $89,100 - $43,200 - $9,000 = $36,900 - $9,000 = $27,900

To calculate the actual net operating income, we need to use the actual level of activity:
Actual Revenue = Actual Tenant-Days x Budgeted Revenue Per Tenant-Day = 2,730 x $33 = $90,090
Actual Variable Expense = Actual Tenant-Days x Budgeted Variable Expense Per Tenant-Day = 2,730 x $16 = $43,680
Net Operating Income = Actual Revenue - Actual Variable Expense - Budgeted Fixed Expenses = $90,090 - $43,680 - $9,000 = $37,410 - $9,000 = $28,410

Therefore, the net operating income in the planning budget for February would be closest to $8,800 (Option C).

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