Perla Kennel uses tenant-days as its measure of activity; an animal housed in th

Question

Perla 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 March, the kennel budgeted for 2,340 tenant-days, but its actual level of activity was 2,300 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for March: Data used in budgeting: Fixed element per month Variable element per tenant-day Revenue ? $ 39.60 Wages and salaries $ 3,330 $ 8.70 Food and supplies 1,400 11.00 Facility expenses 9,750 7.60 Administrative expenses 8,200 1.60 Total expenses $ 22,680 $ 28.90 Actual results for March: Revenue $ 90,440 Wages and salaries $ 23,110 Food and supplies $ 27,250 Facility expenses $ 26,290 Administrative expenses $ 11,970 The revenue variance for March would be closest to: $640 U $2,224 U $2,224F $640 F

Explanation / Answer

Answer is $640 U

Actual level of activity = 2,300 tenant days
Budgeted Revenue = $39.60 per tenant day
Actual Revenue = $90,440

Flexible Budget for Revenue = Actual level of activity * Budgeted Revenue
Flexible Budget for Revenue = 2,300 * $39.60
Flexible Budget for Revenue = $91,080

Revenue Variance = Actual Revenue - Flexible Budget for Revenue
Revenue Variance = $90,440 - $91,080
Revenue Variance = $640 Unfavorable

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