Rhed Kennel uses tenant-days as its measure of activity; an animal housed in the

Question

Rhed Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During December, the kennel budgeted for 3,800 tenant-days, but its actual level of activity was 3,750 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for December:

Data used in budgeting:

Actual results for December:

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

Multiple Choice

$980 F

$20 U

$980 U

$20 F

Fixed element per month Variable element per tenant-day Revenue - $ 34.10 Wages and salaries $ 2,400 $ 7.90 Food and supplies 1,500 13.10 Facility expenses 8,400 4.60 Administrative expenses 6,400 0.40 Total expenses $ 18,700 $ 26.00

Explanation / Answer

Activity Variance is the difference between planning and flexible budget.

Here Planning cost for administrative expense is 6,400 + (0.4*3,800) = 7,920

Flexible budget cost is 6,400 + (0.4*3,750) = 7,900

So activity variance is $20 F

Correct answer is D.

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