Question

Speyer Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,230 patient-visits and the actual level of activity was 1,220 patient-visits. The cost formula for administrative expenses is $4.70 per patient-visit plus $25,500 per month. The actual administrative expense was $24,400. In the clinic's flexible budget performance report for last month, the spending variance for administrative expenses was:

Multiple Choice

• $6,834 F

• $2,770 F

• $47 F

• $6,881 F

Answer 1

The spending variance for administrative expenses can be calculated as:

Spending variance for administrative expenses=Actual administrative expenses-Budgeted administrative expenses based on actual no. of patient visits

Actual administrative expenses=$24,400

Budgeted administrative expenses based on actual no. of patient visits=(Actual no.of patient visits*standard cost per patient)+Standard fixed cost per month

Budgeted administrative expenses based on actual no. of patient visits=(1,220*4.70)+25,500
Budgeted administrative expenses based on actual no. of patient visits=5,734+25,500=$31,234

Spending variance for administrative expenses=$24,400-$31,234

Spending variance for administrative expenses= $6,834(F)