Ch 10 Flexible Budgets and Performance Analysis

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

unfavorable variance

actual revenue is less than what it should have been

favorable variance

actual revenue is more than what it should have been

Common errors in preparing performance reports include:

assuming all costs are fixed; assuming all costs are variable

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

Performance reports for cost centers:

do not include revenues or net income

An unchanged planning budget is known as a(n) ________ planning budget.

static

Revenue and spending variances

subtract flexible budget from actual results

Activity variance

subtract planning budget from flexible budget

Flexible budget

takes into account changes in level of activity

Comparing the static planning budget to actual results only makes sense when:

the actual activity level is the same as the budgeted activity level; all costs are fixed

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 electrical cost =$40 per day x 24 days + $0.15 per client x 2,100 clients + $1,275

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' estimated cost for supplies is $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

The monthly cost formula for utilities is $200 + $0.02q, where q is the number of units produced. What should the budgeted cost of utilizes be for a month in which 6,000 units are produced?

$320

When the planning budget revenue is $60,000 based on 2,000 tickets being sold, what is the flexible budget revenue if only 1,885 tickets are actually sold?

$56,550

How does the level of activity affect costs in a flexibly budget?

Higher levels of activity increase some costs; lower levels of activity reduce some costs

When would the planning budget need to be adjusted?

If activity level changes; if employee hours change

_______ organizations usually receive a significant amount of funding from sources other than sales.

Non-profit

The XYZ Corporation expected to build and sell 25 tractors in May. Due to a flu epidemic causing the plant to close for one week, the staff was only able to produce and sell 19 tractors for the period. What are some of the possible variance due to the activity level variance?

Revenue will be lower this period; plant utlitities' costs were less for the period; plant supplies used were less for the month

A performance report shows that the planned 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

True or false: A discrepancy between the budgeted profit and the actual profit can be caused by a decrease int he actual level of activity.

True

A favorable _______ variance that is higher than expected can cause the actual profit to be higher than the budgeted profit

activity

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

exceeds

The _______ budget takes into account how costs are affected by changes in level of activity.

flexible

Unfavorable activity variances may not indicate bad performance because:

increased activity should result in higher variable costs

When a static planning budget is compared to actual results at a different activity level:

increases or decreases in net income are not adequately explained; changes in costs are expected due to changes in activity

Variances are more accurate when using:

multiple cost drivers

A cost center's performance report does not include _______

net operating income

What items would be omitted on a cost center's performance report?

net operating income;revenue

Static planning budget

only considers the planned level of activity

The flexible budget _______ report combines activity and revenue and spending variances.

performance

A(n) _______ variance is the difference between what the total sales should have been, given the actual level of activity for the period, and the actual total sales.

revenue

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

unfavorable

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n) _______ variance

unfavorable revenue; favorable activity

You would expect total _______ costs to be higher in the flexible budget if the activity level for a period is higher than expected

variable

A flexible budget _______ is the difference between the actual amount and the planned amount at the actual level of activity

variance