Dinham 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 March, the kennel budgeted for 4,500 tenant-days, but its actual level of activity was 4,560 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for March:Data used in budgeting: Actual results for March:
The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for March would be closest to:
A) $2,414 F
B) $2,864 F
C) $2,414 U
D) $2,864 U

Question

Dinham 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 March, the kennel budgeted for 4,500 tenant-days, but its actual level of activity was 4,560 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for March:Data used in budgeting:  Actual results for March:
 The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for March would be closest to:
A) $2,414 F 
B) $2,864 F 
C) $2,414 U 
D) $2,864 U

Quizplus · Accepted Answer

To determine the overall revenue and spending variance, we need to use the following formula:

Actual net operating income - Flexible budget net operating income

= Actual Revenue - Flexible Budget Revenue - Actual Spending + Flexible Budget Spending

= ($48,420 - $46,820) - ($28,350 - $25,650)

= $1,600 - $2,700

= -$1,100 (unfavorable)

Therefore, the overall revenue and spending variance is $1,100 unfavorable. To convert this into a positive number, we need to change the sign, which gives us $1,100 favorable.

Now, we need to add this amount to the flexible budget net operating income to get the actual net operating income:

Flexible budget net operating income + Overall revenue and spending variance

= $25,650 + $1,100

= $26,750

The actual net operating income for March is $26,750.

Next, we need to determine the flexible budget net operating income by using the flexible budget formula:

Flexible budget net operating income = (Budgeted tenant-days x budgeted revenue per tenant-day) - budgeted spending

= (4,500 x $10) - $25,200

= $27,000 - $25,200

= $1,800

Therefore, the flexible budget net operating income is $1,800.

Finally, we can calculate the overall revenue and spending variance as follows:

Actual net operating income - Flexible budget net operating income

= $26,750 - $1,800

= $24,950 (unfavorable)

To convert this into a positive number, we need to change the sign, which gives us $24,950 favorable. This is closest to $2,864 favorable (answer choice D).

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