Ruozzo Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for July. When the company prepared its planning budget at the beginning of July, it assumed that 27 customers would have been served. However, 22 customers were actually served during July.The activity variance for net operating income for July would have been closest to:

A) $16,400 F
B) $15,500 F
C) $15,500 U
D) $16,400 U

To find the activity variance, we need to calculate the difference between the actual results and the flexible budget at the actual level of activity (22 customers).

Flexible budget:
Variable costs:
Direct materials: (22 customers × $120 per customer) = $2,640
Direct labor: (22 customers × $80 per customer) = $1,760
Variable overhead: (22 customers × $40 per customer) = $880
Total variable costs: $5,280

Fixed costs:
Rent: $1,800
Salaries: $5,000
Depreciation: $600
Total fixed costs: $7,400

Total flexible budget: $12,680

Actual results:
Customers served: 22
Revenue: $13,200
Variable costs: ($120 × 22) + ($80 × 22) + ($40 × 22) = $5,280
Fixed costs: $7,400
Total costs: $12,680
Net operating income: $520

The activity variance is the difference between the actual results and the flexible budget:

Net operating income activity variance = Actual net operating income - Flexible budget net operating income
= $520 - $2,000 (27 customers × $80 per customer)
= $15,500 U (unfavorable variance)

Therefore, the answer is C, $15,500 U (unfavorable variance).