Ch. 9

If the planned budget revenue for 5,000 units is $120,000, what is the flexible budget revenue if the actual activity is 4,500 units?

$108,000

True or false: Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity.

False

Which of the following statements is true?

Fixed costs are often more controllable than variable costs.

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 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

When preparing a flexible budget, the level of activity:

affects variable costs only

The variance analysis cycle:

begins with the preparation of performance reports

Estimates of what revenues and costs should have been based on the actual level of activity are shown on the ____________ budget.

flexible

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

performance

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.

revenue

A cost center's performance report does not include:

revenue net operating income

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

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 ____________ variance.

spending

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

static

Companies use the ____________ ____________ cycle to evaluate and improve performance.

variance analysis

A flexible budget performance report combines the:

activity variances with the revenue and spending variances

Comparing actual costs to what the costs should have been for the actual level of activity is done on a(n) ____________ budget.

flexible

Subtract planning budget from actual results

Revenue and spending variances

Actual revenue is less than budgeted revenue.

Unfavorable variance

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

activity

The planning budget calls for total variable costs for supplies to be $6,250 based on 1,000 units with planned revenue at $24,000. A total of 1,200 units were actually produced and sold. What amounts should appear on the flexible budget?

$7,500 for supplies (6,250/1000 = 6.25x1,200 = 7,500) $28,800 revenue (24,000/1,000 = 24x1,200 = 28,800)

The flexible budget performance report consists of:

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

A revenue variance is the:

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

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

exceeds

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.

Unfavorable activity variances may not indicate bad performance because:

increased activity should result in higher variable costs.

A cost center's performance report does not include:

net operating income

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

unfavorable

Planning budgets are sometimes called ____________ budgets.

static

Actual revenue is more than budgeted revenue.

Favorable variance

Subtract planning budget from flexible budget

Activity variance

Options to generate a favorable revenue and spending variance include:

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

Fancy Nail's monthly rent is $2,500. The company's static budget for March was based on the activity level of 2,000 manicures. Total sales was budgeted at $40,000 and nail technician wages (a variable cost based on the number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nails' flexible budget will show:

Sales of $44,000 Rationale: Sales = $20 per manicure ($40,000/2,000) x 2,200 Net operating income of $19,500 Rationale: $44,000 - $22,000 - $2,500

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

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

True

What costs and revenues should be for the actual level of activity is shown on a (n) ____________ budget.

flexible