Kalinowski 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 February, the kennel budgeted for 2,300 tenant-days, but its actual level of activity was 2,320 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for February:
-The net operating income in the flexible budget for February would be closest to:
A) $10,370
B) $10,608
C) $7,642
D) $7,775

Question

Kalinowski 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 February, the kennel budgeted for 2,300 tenant-days, but its actual level of activity was 2,320 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for February: 
-The net operating income in the flexible budget for February would be closest to:
A) $10,370 
B) $10,608 
C) $7,642 
D) $7,775

Quizplus · Accepted Answer

The flexible budget formula for the net operating income is:

Net Operating Income = Budgeted Income - Budgeted Variable Costs - Budgeted Fixed Costs

Using the actual level of activity (2,320 tenant-days), the flexible budget for February would be:

Budgeted Income = $37,200 (20 x 2,320)
Budgeted Variable Costs = $15,280 (1.2 x 2,320 x $5)
Budgeted Fixed Costs = $11,312

Therefore, the net operating income in the flexible budget for February would be:

Net Operating Income = $37,200 - $15,280 - $11,312 = $10,608

Therefore, the best choice is B.

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