Accounting Exam 3

The difference between what the total sales should have been, given the actual level of activity for the period, and the actual total sales is a(n) variance

revenue

the percentage change in net income in the flex budget is greater than the percentage change in activity due to_________cost

fixed or mixed

A budget that is prepared at the beginning of the period for a specific level of activity is called a ______ budget.

Planning

an unchanged planning budget is known as a(n) __ planning budget.

static

What costs and revenues should have been for the actual level of activity is shown on a (n)_________ budget.

flexible

Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units. If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?

$11,600 and favorable Reason: Flexible budget expense: $16,000 ÷ 4,000 = $4 per unit × 2,900 units = $11,600. Since the flexible budget expense < planning budget expense, the variance is favorable.

Fancy Nails has an estimated cost for supplies of $0.75 per manicure. June's budget was based on 2,400 manicures and a total cost for supplies of $1,800. June's actual activity was 2,500 manicures. Total cost of supplies in June was $2,000. Calculate the spending variance for June

$125 U Reason: Flexible budget amount for supplies: $0.75 × 2,500 manicures = $1,875. Spending variance: $1,875 - $2,000 = $125 U.

Revenue on the planning budget is expected to be $380,000 for 1,900 client visits. The revenue on the flexible budget is $410,000, showing that there were actually ______ client visits.

2,050 Reason: $380,000 ÷ 1,900 = $200 per client visit. $410,000 ÷ $200 = 2,050 client visits.

The difference between a revenue or cost item in the planning budget and the same item in the flex budget at the actual level of activity is a __________ variance

Activity

Match the definition with the term. Unfavorable variance Favorable Variance

Actual revenue is less than budgeted revenue. Actual revenue is more than budgeted revenue

The system that compares actual results to a budget so that significant deviations can be flagged and investigated further is called

Management by expectation

When the activity level increases by 15%, net operating income in the flexible budget will ordinarily increase by ______ 15%.

More than Reason: Net operating income will increase by more than 15% because fixed costs do not increase with changes in activity.

Companies use what cycle to evaluate and improve performance?

Variance Analysis Cycle

A revenue variance is the

difference between what a cost should have been at the actual level of activity and the actual amount of the cost

The difference between how much cost should've been, given the actual level of activity, and the actual amount of cost is a(n)_____________ variance

spending

A company's cost of supplies for when 5,000 units are sold is $7,500 of fixed costs plus $1.25 variable cost per unit. What is the increase in the total cost of supplies if 350 more units are sold than expected?

$437.50 Reason: 350 × $1.25 = $437.50. Fixed costs remain the same.

The planning budget calls for total variable costs for supplies to be $6,250 based on 1,000 units with planned revenue at $24,000. A total of 1,200 units were actually produced and sold. What amounts should appear on the flexible budget?

$6,250 for supplies Reason: Supplies is a variable cost, so it increases when activity increases.

The variance analysis cycle ______.

begins with the preparation of performance reports

A favorable activity variance may not indicate good performance because a favorable activity variance ______.

for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity

If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $0.20 unit, and actual fixed costs total $500, which of the following are true?

$1,300 in total costs Reason: 4,000 units × $0.20 + $500 = $1,300 total costs

If the planned budget revenue for 5,000 units is $120,000, what is the flexible budget revenue if the actual activity is 4,500 units?

$108,000 Reason: $120,000 ÷ 5,000 = $24 per unit × 4,500 = $108,000

If the planned budget revenue for 5,000 units is $120,000, what is the flexible budget revenue if the actual activity is 4,500 units? Multiple choice question. $180,000

$108,000 Reason: $120,000 ÷ 5,000 = $24 per unit × 4,500 = $108,000

True or false: A static budget is being compared to actual activity. The variance is F for net income but U for most expenses. This suggests that actual activity was lower than budgeted.

False

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n)__________activity variance

Favorable

When preparing a flexible budget, the level of activity ______.

affects variable cost only

Because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is called the effect.

leverage

The concept that focuses on important variances and ignores trivial ones is ______.

management by exception

When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that ______.

net income is higher than expected but all or most expense variances are unfavorable

Fancy Nail's monthly rent is $2,500. The company's static budget for March was based on the activity level of 2,000 manicures. Total sales was budgeted at $40,000 and nail technician wages (a variable cost based on the number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nails' flexible budget will show ______.

sales of $44,000 Reason: $20 per manicure ($40,000 ÷ 2,000) × 2,200 = $44,000 net operating income of $19,500 Reason: $44,000 - $22,000 - $2,500

Planning budgets are sometimes called ______ budgets.

static