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:

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 is the difference between the actual and budgeted amounts caused by a change in activity level. Given that the expected change in activity level is 10%, we can calculate the expected activity variance as follows:
Expected activity variance = Budgeted net operating income x (Actual activity level - Budgeted activity level) / Budgeted activity level
= $20,000 x (11,000 - 10,000) / 10,000
= $2,000 U
However, the actual activity variance is only $1,800 U, indicating that the company did not perform as well as expected given the increase in activity level. Therefore, the activity variance for net operating income in December is $200 U (underperformance).

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