Chapter 9

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. True false question.

False

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

A cost center's performance report does not include ______.

net operating income

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

planning

The variance analysis cycle ______.

begins with the preparation of performance reports

When actual revenue ______ what the revenue should have been, the variance is labeled favorable.

exceeds

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n) (1) activity variance. (Enter either favorable or unfavorable.)

1. favorable

Companies use the (1) (2) cycle to evaluate and improve performance. (Enter only one word per blank.)

1. variance 2. analysis

Variances are more accurate when using ______.

multiple cost drivers

A flexible budget performance report combines the ______.

activity variances with the revenue and spending variances

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

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

The spending variance is labeled as favorable when the ______.

actual cost is less than what the cost should have been at the actual level of activity

Select all that apply A flexible budget shows ______.

what fixed costs should have been at the actual level of activity what revenue should have been at the actual level of activity what variable costs should have been at the actual level of activity

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

Select all that apply A performance report shows that the planning revenue was $200,000, the flexible budget revenue was $225,000, and actual revenue was $223,000. Which of the following statements are true?

The activity variance is $25,000 Favorable. The revenue variance is $2,000 Unfavorable.

One option to generate a favorable ______ variance for net operating income is to increase the number of clients.

activity

The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) ______ variance.

activity

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

affects variable costs only

A spending variance is the ______.

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

A revenue variance is the ______.

difference between what revenue should have been at the actual level of activity and the actual revenue

Performance reports for cost centers ______.

do not include revenues or net income

Using multiple cost drivers on a flexible budget report will generally ______.

increase accuracy

Match the definition with the term.

Unfavorable variance: Actual revenue is less than budgeted revenue. Favorable variance: Actual revenue is more than budgeted revenue.

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

The flexible budget (1) report combines activity and revenue and spending variances. (Enter only one word per blank.)

1. performance

Select all that apply Options to generate a favorable revenue and spending variance include ______.

reduce the prices of inputs increase operating efficiency protecting the selling price

Fancy Nails' budgeted revenue is $20 per manicure. The planning budget for June was based on 2,400 manicures. During June, the actual revenue was $49,750 for 2,500 manicures. The revenue variance for June is ______.

$250 U

A performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and actual revenue was $230,000. The activity variance is $ (1) (2). (Enter the whole dollar amount and indicate if the variance is F or U.)

1. 15,000 2. U

The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) (1) variance. (Enter only one word per blank.)

1. activity

Estimates of what revenues and costs should have been based on the actual level of activity are shown on the (1) budget. (Enter only one word per blank.)

1. flexible

Revenues and costs are adjusted as the level of activity changes on a(n) (1) budget. (Enter only one word per blank.)

1. flexible

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) (1) variance. (Enter only one word per blank.)

1. revenue

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a(n) (1) variance. (Enter only one word per blank.)

1. spending

An unchanged planning budget is known as a(n) (1) planning budget. (Enter only one word per blank.)

1. static

If the actual cost is greater than what the cost should have been, the variance is labeled as (1). (Enter only one word per blank.)

1. unfavorable

Select all that apply Nonprofit organizations ______.

may have revenue sources that are fixed usually have significant funding sources other than sales

Select all that apply A cost center's performance report does not include ______.

net operating income revenue

Planning budgets are sometimes called ______ budgets.

static

Select all that apply The flexible budget performance report consists of ______.

the planning budget, flexible budget and actual results activity variances revenue and spending variances

The prominent difference between performance reports in nonprofit and for-profit organizations is that nonprofit organizations ______.

usually receive significant funding from sources other than sales