Question

Kirnon Clinic uses client-visits as its measure of activity. During July, the clinic budgeted for 3,500 client-visits, but its actual level of activity was 3,410 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting:

	Fixed element per month			Variable element per client-visit
Revenue		-		$	39.60
Personnel expenses	$	35,600		$	10.80
Medical supplies		1,600			7.60
Occupancy expenses		8,600			1.60
Administrative expenses		5,600			0.70
Total expenses	$	51,400		$	20.70

The activity variance for personnel expenses in July would be closest to:

Answer 1

Activity variance is difference between flexible budget and planned budget

flexible budget is the planned budget for actual activity.

actual activity Xa= 3,410 clients

planned activity Xp= 3,500 clients

• Planned personnel budget = $35,600+$10.80*Xp

=$35,600 +$10.80*3,500

=$35,600+$37,800

=$73,400

• Flexible budget = $35,600+$10.80*Xa

=$35,600+$10.80*3,410

=$35,600+$36,828

=$72,428

Fixed costs will remain constant however variable cost will change as the number of clients changes.

Activity variance for personnel expenses in July = Flexible budget-planned budget

=$72,428-$73,400

=$972 Favorable as the flexible budget cost< planned budget the variance is favorable.