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 4,050 client-visits, but its actual level of activity was 3,970 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting:

$55,800

$24.20

  
The activity variance for net operating income in August would be closest to:

$1,320 U

$1,320 F

$570 U

$570 F

Gourley Clinic uses client-visits as its measure of activity. During August, the clinic budgeted for 4,050 client-visits, but its actual level of activity was 3,970 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting:

Explanation / Answer

Net income as per planned = Planned No. of client visits * (Revenue per client - Variable cost) - Fixed overhead

= 4,050 * ($40.70 - $24.20) - $55,800

= $11,025

Actual Net income = Actual No. of client visits * (Revenue per client - Variable cost) - Fixed overhead

= 3,970 * ($40.70 - $24.20) - $55,800

= $9,705

Activity variance of net income = ($11,025 - $9,705) U

= $1,320 U

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