Question

Kirnon Clinic uses client-visits as its measure of activity. During July, the clinic budgeted for 3,500...

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:

Homework Answers

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.

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