Chapter 9 Smartbook Assignment

Fancy Nails cost formula for electricity is $40 per operating day plus $0.15 per client served. Calculate Fancy Nails' electricity budget in a month when the business is going to be open for 24 days and they expect to serve a total of 2,100 clients.

$1,275 ($40 x 24) + (0.15 x 2,100)

Fancy Nails cost formula for miscellaneous expenses is $30 per operating day plus $0.25 per client served. Fancy Nails' miscellaneous expense budget in a month when the business is going to be open for 25 days and they expect to serve a total of 2,400 clients is $

$1,350 ($30 x 25) + ($0.25 x 2,400)

If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is ___

$108,000 $120,000 / 5,000 = $24 per unit x 4,500

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 Flexible budget expense: $16,000 / 4,000 = $4 per unit x 2,900 units = $11,600. Since the flexible budget expense is less than the planning budget expense, the variance is favorable.

A company's budgeted cost of supplies 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?

$437.50 350 x $1.25

Nonprofit organizations -Never have variance resource sources -May have revenue sources that are fixed -Never have costs -Have significant funding sources besides sales

-May have revenue sources that are fixed -Have significant funding sources besides sales

Options to generate favorable revenue and spending variances include ___ -Increasing the number of clients -Reducing the prices of inputs -Increasing operating efficiency -Protecting the selling price

-Protecting the selling price -Increase operating efficiency -Reduce the prices of inputs

A cost center's performance report does not include ___ -Revenue -Costs -Net operating income -Variances

-Revenue -Net operating income

The flexible budget performance report consists of ___

-Revenue and spending variances -The planning budget, flexible budget and actual results -Activity variances

A flexible budget shows what budgeted amounts should have been at the actual level of activity. As a result of this change in activity, the flexible budget will show a change in total... -Variable cost -Fixed cost -Revenue

-Variable cost -Revenue

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

-the activity variance is $25,000 favorable -The revenue variance is $2,000 Unfavorable Activity variance = Flexible budget - Planning budget (225,000 - 200,00) Revenue variance = Actual revenue - flexible budget (223,000 - 225,000)

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 $380,000 / 1,900 = $200 per client visit. $4,100 / $200 = 2,050 client visits

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 ___ variance

Activity

A flexible budget performance report combines the ___

Activity variances with the revenue and spending variances

Unfavorable variance

Actual revenue is less than budgeted revenue

Favorable variance

Actual revenue is more than budgeted revenue

When preparing a flexible budget, the level of activity ___

Affects variable costs only

The variance analysis cycle ___ -Includes the investigation of all variances -Begins with the preparation of the budget -Is used to assign blame for poor performance -Begins with the preparation of performance reports

Begins with the preparation of performance reports

Performance reports for cost centers ___ -Do not include revenues or net income -Are not common in most organizations -Are significantly different than reports prepared for other departments

Do not include revenues or net income

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a ___ activity variance

Favorable

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,00, there is a ___ activity variance

Favorable Flexible budget revenue is higher than the planning budget revenue

A budget that takes into account how costs are affected by changes in level of activity is a ___ budget

Flexible

An estimate of what revenue and costs should have been, based on the actual level of activity is shown on a ___

Flexible Budget

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 ___ budgeted activity

Higher than

Using multiple cost drivers on a flexible budget report will generally ___

Increase accuracy

If the actual cost is greater than what the cost should have been, the variance is labeled as ___

Unfavorable

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

Companies use the ___ ___ cycle to evaluate and improve performance

Variance analysis

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 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

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. The actual cost of supplies in June was $2,000. Calculate the spending variance for June.

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

$15,000 U Flexible budget - Planning budget $225,000 - $240,000

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 Unfavorable Flexible budget amount for revenue = $20 per manicure x 2,500 manicures = $50,000 Revenue variance = $50,000 - $49,750 = $250 U

The planning budget, based on 1,000 units, shows revenue of $24,000 and $6,250 for supplies. A total of 1,200 units were actually produced and sold. The flexible budget will show ___ -$6,250 for supplies -$24,000 revenue -$28,800 revenue -$7,500 for supplies

-$28,800 revenue --($24,000 / 1,000 = $24 per unit x 1,200 -$7,500 for supplies --($6,250 / 1,000 = $6.25 per unit x 1,200)

The percentage change in net income in the flexible budget is generally greater than the percentage change in activity due to ___

-Fixed costs -Mixed costs Revenue and variable costs change in proportion to change in activity, so they do not account for the higher percentage increase in income. the increase is from costs that do not change - fixed and the fixed components of mixed costs

A revenue variance is the ___

Difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period

When a change in sales mix causes the average selling price to be ___ the amount expected, the revenue variance is labeled favorable

Higher than

Unfavorable activity variances may not indicate bad performance because ___

Increased activity should result in higher variable costs

The spending variance is labeled as favorable when the actual cost is ___ level of activity

Less than what the cost should have been at the actual

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

Management by exception

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

Management by exception

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

More than

Variances are more accurate when using ___

Multiple cost drivers

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 budget that is prepared before the beginning of the period for a specific level of activity is called a ___ budget

Planning

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 ___ variance

Revenue

The difference between how much a cost should have been, given level of activity, and the amount of the cost is a ___ variance

Spending

Planning budgets are sometimes called ___ budgets

Static