Gourley Clinic uses client-visits as its measure of activity. During August, the

Question

Gourley Clinic uses client-visits as its measure of activity. During August, the clinic budgeted for 3,200 client-visits, but its actual level of activity was 3,150 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting:

                               

The activity variance for administrative expenses in August would be closest to:

a) $5 F

b) $5 U

c) $65 U

d) $65 F

fixed element per month Variable element per client-visit revenue ------ $39.00 personnel expense $35,000 $10.20 medical supplies $1,000 $7.00 occupancy expenses $8,000 $1.00 administrative expenses $5,000 $0.01 total expenses $49,000 $18.30

Explanation / Answer

Because the flexible budget is less than the planning budget, the variance is favorable (F)

The answer is option A

fixed element per month Variable element per client-visit revenue ------ $39.00         personnel expense $35,000 $10.20 medical supplies $1,000 $7.00 occupancy expenses $8,000 $1.00 administrative expenses $5,000 $0.01 total expenses $49,000 $18.30 Total administrative expenses @ 3200 visit                                     5,320.00 Total administrative expenses @ 3150 visit                                     5,315.00 Activity budget                                             5.00

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