Asked by hannah burkle on Jun 17, 2024
Verified
Chimilio Clinic uses client-visits as its measure of activity. During June, the clinic budgeted for 3,400 client-visits, but its actual level of activity was 3,360 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for June:Data used in budgeting: Actual results for January:
The net operating income in the flexible budget for June would be closest to:
A) $8,957
B) $11,152
C) $11,780
D) $8,748
Net Operating Income
The profit generated from a company's core business operations, excluding deductions for interest and taxes.
Client-Visits
Meetings or engagements with clients outside or within the company premises to discuss business, services, or products.
Flexible Budget
A budget that adjusts or flexes with changes in volume or activity levels of the business.
- Conceive the principles of flexible budgeting and its adaptiveness to alterations in the dynamics of operations.
- Review the impact of varying activity levels on net operating income.
Verified Answer
Net operating income = Budgeted selling and administrative expenses - (Budgeted variable cost per client-visit x Actual client-visits)
Plugging in the numbers from the data provided:
Net operating income = $89,000 - ($20 x 3,360)
Net operating income = $89,000 - $67,200
Net operating income = $21,800
Therefore, the net operating income in the flexible budget for June would be closest to $11,152 (the closest answer choice).
Learning Objectives
- Conceive the principles of flexible budgeting and its adaptiveness to alterations in the dynamics of operations.
- Review the impact of varying activity levels on net operating income.
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