ACCT 3030 Ch 9

Protecting the selling price, increasing operating efficiency, reducing the prices of inputs

3 options to generate a favorable revenue and spending variance

Flexible

A ________ budget adjusts to show what costs should be for the actual level of activity

Static

A ________ planning budget is suitable for planning but is inappropriate for evaluating how well costs are controlled

Planning budget

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity

Management by exception

A management system in which actual results are compared to a budget; significant deviations from the budget are flagged as exceptions and investigated further

Activity: $25,000 F Revenue: $2,000 U

A performance report shows that the planned revenue was $200,000, the flexible budget revenue $225,000, and actual revenue was $223,000. What are the activity and revenue variances?

Flexible budget

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period

Unfavorable

A(n) (favorable/unfavorable) spending variance occurs because the cost is higher than expected, given the actual level of activity for the period

Favorable

A(n) (favorable/unfavorable) spending variance occurs because the cost is lower than expected, given the actual level of activity for the period

Activity

A(n) ________ variance is due solely to the difference between the actual level of activity used in the flexible budget and the actual level of activity used in the planning budget

Fixed

Comparing actual costs to static planning budget costs only makes sense if the cost is...

Accurate

Cost formulas based on more than one cost driver are more accurate than the cost formulas based on just one cost driver, the variances will also be more ________

Control; performance evaluation

Flexible budgets help managers ________ costs and improve ________

Relevant range

Flexible budgets may be prepared for any actual level in the ________

Cost centers

Performance reports for ________ do not include revenues or net income

Flexible budget performance report

The ________ combines activity and revenues and spending variances

Activity variance

The difference between a revenue or cost item in the flexible budget and the same item in the static planning budget

Spending variance

The difference between the actual amount of the cost and how much the cost should have been, given the actual level of activity

Revenue variance

The difference between the actual revenue for the period and how much the revenue should have been, given the actual level of activity

Revenue and spending

To understand why actual net operating income differs from what it should have been at the actual level of activity, which variance(s) should be analyzed?

True (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)

True or false (+Explain)? A favorable activity variance may not indicate good performance.

To implicitly assume that all costs are fixed or to implicitly assume that all costs are variable; inaccurate benchmarks and incorrect variances

What are the most common errors in preparing performance reports? What do they lead to?

Fixed costs

Which costs are often more controllable: fixed or variable?