Tessmer 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 January, the kennel budgeted for 3,100 tenant-days, but its actual level of activity was 3,090 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for January:Data used in budgeting: Actual results for January:
The net operating income in the flexible budget for January would be closest to:
A) $13,878
B) $13,788
C) $12,963
D) $13,070

Question

Tessmer 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 January, the kennel budgeted for 3,100 tenant-days, but its actual level of activity was 3,090 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for January:Data used in budgeting:  Actual results for January:
 The net operating income in the flexible budget for January would be closest to:
A) $13,878 
B) $13,788 
C) $12,963 
D) $13,070

Quizplus · Accepted Answer

The formula used in the budgeting process is:
$36,500 + ($10 × Tenant-Days)
Using the actual level of activity of 3,090 tenant-days, the flexible budget should be:
$36,500 + ($10 × 3,090) = $67,400
The actual operating income for January was $54,437. To determine the net operating income in the flexible budget, we need to subtract the actual variable expenses from the budgeted contribution margin:
Flexible budget contribution margin = ($67,400 - $36,500) = $30,900
Flexible budget variable expenses = ($10 × 3,090) = $30,900
Net operating income in the flexible budget = Flexible budget contribution margin - Flexible budget variable expenses - Fixed expenses
Net operating income in the flexible budget = $30,900 - $30,900 - $8,037 = $(-$8,037)
The negative result shows that the kennel would have incurred a loss in January if it had budgeted for 3,090 tenant-days. Therefore, the kennel did not achieve its budgeted net operating income of $12,963.

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