Spohn Clinic uses client-visits as its measure of activity. During February, the clinic budgeted for 3,400 client-visits, but its actual level of activity was 3,370 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting for February: The net operating income in the planning budget for February would be closest to:
A) $11,862
B) $11,653
C) $11,040
D) $10,617

Question

Spohn Clinic uses client-visits as its measure of activity. During February, the clinic budgeted for 3,400 client-visits, but its actual level of activity was 3,370 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting for February:  The net operating income in the planning budget for February would be closest to:
A) $11,862 
B) $11,653 
C) $11,040 
D) $10,617

Quizplus · Accepted Answer

Net operating income in planning budget = Budgeted revenue - Budgeted expenses
Budgeted revenue = Budgeted client-visits x Budgeted revenue per visit
Budgeted revenue per visit = Budgeted total revenue / Budgeted client-visits = $380,000 / 3,400 = $111.76
Budgeted revenue = 3,400 x $111.76 = $380,064
Budgeted expenses = Fixed expenses + Variable expenses
Fixed expenses = $134,000
Variable expenses = Budgeted variable expense per visit x Actual client-visits
Budgeted variable expense per visit = $70
Actual client-visits = 3,370
Variable expenses = $70 x 3,370 = $235,900
Budgeted expenses = $134,000 + $235,900 = $369,900
Net operating income in planning budget = $380,064 - $369,900 = $10,164
Since actual client-visits (3,370) are slightly below budgeted client-visits (3,400), actual net operating income would be slightly below budgeted net operating income. The question asks for the closest estimate, so the answer should be C, which is the closest option to $10,164.

Spohn Clinic Uses Client-Visits as Its Measure of Activity