Ruetz Clinic uses client-visits as its measure of activity.During November, the clinic budgeted for 2, 500 client-visits, but its actual level of activity was 2, 520 client-visits.The clinic has provided the following data concerning the formulas to be used in its budgeting: The net operating income in the flexible budget for November would be closest to:
A)$9, 461
B)$12, 950
C)$9, 312
D)$13, 376

Question

Ruetz Clinic uses client-visits as its measure of activity.During November, the clinic budgeted for 2, 500 client-visits, but its actual level of activity was 2, 520 client-visits.The clinic has provided the following data concerning the formulas to be used in its budgeting:  The net operating income in the flexible budget for November would be closest to:
A)$9, 461 
B)$12, 950 
C)$9, 312 
D)$13, 376

Quizplus · Accepted Answer

First, we need to calculate the clinic's flexible budget for 2,520 client-visits using the formula given in the data:

Variable costs per client-visit: $67 + $23 + $18 = $108

Fixed costs: $11,300

Flexible budget:

2,520 client-visits x $108 per client-visit + $11,300 fixed costs = $282,560

Next, we need to calculate the clinic's static budget:

2,500 client-visits x $108 per client-visit + $11,300 fixed costs = $277,300

The difference between the flexible budget and the static budget is the clinic's flexible budget variance:

Flexible budget variance = Actual results - Flexible budget

Flexible budget variance = 2,520 client-visits x $108 per client-visit + $11,300 fixed costs - $282,560

Flexible budget variance = $13,376 U

The U stands for unfavorable variance, which means that the actual net operating income is lower than the flexible budget net operating income.

Therefore, the actual net operating income for November is:

Flexible budget net operating income - Flexible budget variance

$282,560 - $13,376 = $269,184

So the closest option is D) $13,376

Ruetz Clinic Uses Client-Visits as Its Measure of Activity