Question

Bartosiewicz Clinic uses client-visits as its measure of activity. During January, the clinic budgeted for 4,300 client-visits, but its actual level of activity was 4,280 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for January:

Data used in budgeting:

	Fixed element per month			Variable element per client-visit
Revenue		-		$	36.30
Personnel expenses	$	28,300		$	12.30
Medical supplies		1,200			6.30
Occupancy expenses		10,200			1.00
Administrative expenses		7,300			0.40
Total expenses	$	47,000		$	20.00

Actual results for January:

Revenue	$	127,220
Personnel expenses	$	70,130
Medical supplies	$	21,114
Occupancy expenses	$	14,200
Administrative expenses	$	7,880

The overall revenue and spending variance (i.e., the variance for net operating income in the revenue and spending variance column on the flexible budget performance report) for January would be closest to:

Answer 1

The overall revenue and spending variance

Actual Results

Actual Net Operating Income = Revenue – Expenses

= $127,220 – [$70,130 + 21,114 + 14,200 + 7,880]

= $127,220 – 113,324

= $13,896

Flexible Budget

Contribution margin per tenant-day = Revenue per client-visit – Total expenses per client-visit

= $36.30 - $20

= $16.30 per client-visit

Net Operating Income under Flexible budget = Total Contribution Margin – Fixed Expenses

= [4,280 client-visits x $16.30 per client visit] - $47,000

= $69,764 – 47,000

= $22,764

Therefore, The overall revenue and spending variance is $8,868 [$22,764 – 13,896]. Since the Net Operating Income under flexible budget is higher than actual and therefore, the Variance is Unfavourable

“Hence, The overall revenue and spending variance = $8,868 U [Unfavourable]