Smithj 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 3,500 tenant-days, but its actual level of activity was 3,490 tenant-days. The kennel 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 revenue variance for February would be closest to:
A)$640 F
B)$918 F
C)$640 U
D)$918 U

Question

Smithj 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 3,500 tenant-days, but its actual level of activity was 3,490 tenant-days. The kennel 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 revenue variance for February would be closest to:
A)$640 F 
B)$918 F 
C)$640 U 
D)$918 U

Quizplus · Accepted Answer

To calculate revenue variance, we need to use the formula:

Revenue Variance = Actual Revenue - Budgeted Revenue

We are not given the budgeted or actual revenue. However, we are given the budgeted and actual number of tenant-days and the average revenue per tenant-day. Therefore, we can calculate the actual revenue and the budgeted revenue as follows:

Actual revenue = Actual number of tenant-days x Average revenue per tenant-day
= 3,490 x $165
= $576,150

Budgeted revenue = Budgeted number of tenant-days x Average revenue per tenant-day
= 3,500 x $170
= $595,000

Revenue variance = Actual revenue - Budgeted revenue
= $576,150 - $595,000
= -$18,850

The negative sign indicates that the actual revenue is less than the budgeted revenue. Therefore, the revenue variance is $18,850 unfavorable or $18,850 under budget.

The closest answer choice is C) $640 U (which stands for $640 unfavorable). However, this is not the correct answer. The correct answer is $18,850 U (which stands for $18,850 unfavorable).

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