SB Ch 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.
False
Which of the following statements is true?
Fixed costs are often more controllable than variable costs.
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 flexible budget performance report consists of
activity variances revenue and spending variances the planning budget, flexible budget and actual results
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
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
Nonprofit organizations
have significant funding sources besides sales may have revenue sources that are fixed
Using multiple cost drivers on a flexible budget report will generally
increase accuracy
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
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
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
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
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) ______ variance
Blank 1: spending
Variance Analysis Cycle
begins with the preparation of performance reports
Planning budgets are sometimes called ______ budgets.
static
Match the comparisons made on the performance report. 1)Activity variance 2)Revenue and spending variances
1)Subtract planning budget from flexible budget 2)Subtract flexible budget from actual results
To understand why actual net operating income differs from what it should have been at the actual level of activity, the ______ variances should be analyzed.
revenue and spending
A cost center's performance report does not include ______.
net operating income
Options to generate favorable revenue and spending variances include
protecting the selling price increasing operating efficiency reducing the prices of inputs
A cost center's performance report does not include
revenue net operating income
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
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
When preparing a flexible budget, the level of activity
affects variable costs only
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
Match the definition with the term. 1)Unfavorable variance 2)Favorable variance
1)Actual revenue is less than budgeted revenue. 2)Actual revenue is more than budgeted revenue.
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 $ ______ ______
Blank 1: 15,000 Blank 2: U, unfavorable, or unfavourable
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.
Blank 1: favorable, F, or favourable
Estimates of what revenues and costs should have been based on the actual level of activity are shown on the ______ budget
Blank 1: flexible or flex
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
Blank 1: revenue
An unchanged planning budget is known as a(n) ______ planning budget
Blank 1: static
An unchanged planning budget is known as a(n)_______planning budget.
Blank 1: static
Fixed costs are often more controllable than variable costs.
True
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
If the actual cost is greater than what the cost should have been, the variance is labeled as
Blank 1: unfavorable, U, or unfavourable
Companies use the _____ _____ cycle to evaluate and improve performance.
Blank 1: variance Blank 2: analysis
Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity.
False
When actual revenue ______ what the revenue should have been, the variance is labeled favorable.
exceeds
Unfavorable activity variances may not indicate bad performance because
increased activity should result in higher variable costs