Spohn Clinic uses client-visits as its measure of activity. During February, the clinic budgeted for 3,400 client-visits, but its actual level of activity was 3,370 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting for February: The net operating income in the planning budget for February would be closest to:

A) $11,862
B) $11,653
C) $11,040
D) $10,617

Question

Spohn Clinic uses client-visits as its measure of activity. During February, the clinic budgeted for 3,400 client-visits, but its actual level of activity was 3,370 client-visits. The clinic has provided the following data concerning the formulas to be used in its budgeting for February:

The net operating income in the planning budget for February would be closest to:

A) $11,862
B) $11,653
C) $11,040
D) $10,617

Kayla Freneaux · Accepted Answer

Final Answer : C, Explanation :  Net operating income in planning budget = Budgeted revenue - Budgeted expensesBudgeted revenue = Budgeted client-visits x Budgeted revenue per visitBudgeted revenue per visit = Budgeted total revenue / Budgeted client-visits = $380,000 / 3,400 = $111.76Budgeted revenue = 3,400 x $111.76 = $380,064Budgeted expenses = Fixed expenses + Variable expensesFixed expenses = $134,000Variable expenses = Budgeted variable expense per visit x Actual client-visitsBudgeted variable expense per visit = $70Actual client-visits = 3,370Variable expenses = $70 x 3,370 = $235,900Budgeted expenses = $134,000 + $235,900 = $369,900Net operating income in planning budget = $380,064 - $369,900 = $10,164Since actual client-visits (3,370) are slightly below budgeted client-visits (3,400), actual net operating income would be slightly below budgeted net operating income. The question asks for the closest estimate, so the answer should be C, which is the closest option to $10,164.

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