ACCT-208 chap 9

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

flexible budget

The difference between the actual total revenue and budgeted total revenue at the actual level of activity is called a(n) _________

revenue variance

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.

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

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 $

15k and 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.

Which of the following is true when a company determines that its costs should be explained by more than one cost driver?

A flexible budget performance report that is based on more than one cost driver will be more accurate than a flexible budget performance report that is based on just one cost driver.

An unfavorable variance of $5,000 in sales is determined by comparing the flexible budget (9,000 units) and the planning budget (10,000 units). What type of variance is described?

Activity variance

all of the following is a column on a flexible budget performance report?

Actual results Planning budget Activity variances

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

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

All of the following are reasons for revenue variances _________

Selling price product mix discount structure poor acct controls

An unfavorable variance of $5,000 in cost of goods sold is determined by comparing the actual results (10,000 units) and the flexible budget (10,000 units). What type of variance is described?

Spending variance

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

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)

activity Reason: A spending variance is the difference between how much a cost should have been given the actual level of activity and the actual amount of the cost.

A flexible budget performance report combines the

activity variances with the revenue and spending variances

The variance analysis cycle

begins with the preparation of performance reports

A revenue variance is the

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

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. (Enter either favorable or unfavorable.)

favorable

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

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

higher than

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 Reason: Higher net income is generally due to higher levels of activity which causes some (variable) expenses to increase and leads to a F income and U expenses variances.

Using multiple cost drivers on a flexible budget report will generally

increase accuracy

All of the following are reasons for spending variances _________

input prices technology changes in usage

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

more than

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

planning

Options to generate favorable revenue and spending variances include

protecting the selling price reducing the prices of inputs increasing operating efficiency

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

spending

The difference between the actual cost and budgeted cost at the actual level of activity is called a(n) _________

spending variance

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

unfavorable

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 Reason: Electrical cost = $40 per day × 24 days + $0.15 per client × 2,100 clients = $1,275

unfavorable variance

Actual revenue is less than budgeted revenue

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

Fixed and Mixed costs

favorable variance

actual revenue is more than budgeted revenue

When preparing a flexible budget, the level of activity

affects variable costs only

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)

revenue

Planning budgets are sometimes called ______ budgets.

static x flexible -Reason: A planning budget is prepared using a static level of activity. A flexible budget takes into account what costs should have been at the actual level of activity.

The flexible budget performance report consists of

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

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

flexible

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. wrong: The revenue variance is $2,000 Favorable. Reason: Because the actual revenue was less than the flexible budget revenue, the variance is unfavorable. The activity variance is $25,000 Unfavorable. Reason: Because the actual activity was greater than the planned activity, the variance is favorable.

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 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

revenue variable cost