Pearse 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 December, the kennel budgeted for 3, 000 tenant-days, but its actual level of activity was 2, 980 tenant-days.The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for December: Data used in budgeting: Actual results for December: The activity variance for net operating income in December would be closest to:
A)$640 F
B)$640 U
C)$200 U
D)$200 F

Question

Pearse 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 December, the kennel budgeted for 3, 000 tenant-days, but its actual level of activity was 2, 980 tenant-days.The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for December: Data used in budgeting:  Actual results for December:  The activity variance for net operating income in December would be closest to:
A)$640 F 
B)$640 U 
C)$200 U 
D)$200 F

Quizplus · Accepted Answer

The activity variance for net operating income is calculated as the difference between the actual net operating income and the flexible budget net operating income, which is computed using the actual level of activity.

Flexible budget net operating income = Budgeted net operating income + (Budgeted variable cost per tenant-day × Actual tenant-days)

Flexible budget net operating income = $24,000 + ($10 × 2,980) = $53,800

Actual net operating income = $53,600

Activity variance = Actual net operating income – Flexible budget net operating income 
= $53,600 – $53,800 = $200 U

Therefore, the closest option is C) $200 U.

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