CH. 9 Learn Smart
revenue and spending variances
subtract flexible budget from actual results
Activity variance
subtract planning budget from flexible budget
exceeds
when actual revenue ____________ what the revenue should have been, the variance is labeled favorable
$437.50 (350 * $1.25 = $437.50. Fixed costs remain the same)
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?
net operating income
A cost center's performance report does not include _______________
for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity
A favorable activity variance may not indicate good performance because a favorable activity variance ___________
The activity variance is $25,000 Favorable. (Reason: Because the actual activity was greater than the planned activity, the variance is favorable.) The revenue variance is $2,000 Unfavorable. (Reason: Because the actual revenue was less than the flexible budget revenue, the variance is unfavorable.)
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?
$15,000 Unfavorable
A performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and the actual revenue was $230,000. The activity variance is $ ____________ ______________
difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period
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
A revenue variance is the _________________
unfavorable variance
Actual revenue is less than budgeted revenue
performance
The flexible budget ___________ report combines activity and revenue and spending variances
$11,600 and favorable ( Reason: Flexible budget expense: $16,000/4,000 = $4 per unit x 2,900 units = $11,600. Since the flexible budget expense < planning budget expense, the variance is favorable.)
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?
actual cost is less than what cost should have been at the actual level of activity
The spending variance is labeled as favorable when the _______________
begins with the preparation of performance reports
The variance analysis cycle ___________
-sales of $44,000 ($20 per manicure ($40,000/2,000)*2,200= $44,000) -net operating income of $19,500 ($44,000-$22,000-$2,500= $19,500)
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______________
favorable
Given a planning budget revenue of $284,000, actual revenue of $275,000 and flexible budget revenue of $290,000 there is a ____________ activity variance
$1300 in total costs (4,000 units * $0.20 +$500 = $1300 total costs) $4,700 net income ($6,000 - (4000 * $0.20)-$500 = $4700 net income)
If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $0.20 unit, and actual fixed costs total $500, which of the following are true?
favorable
If the actual cost is greater than what the cost should have been, the variance is labeled as _____________
revenue and spending
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.
increased activity should result in higher variable costs
Unfavorable activity variances may not indicate bad performances because _______________-
activity
One option to generate a favorable ______________ variance for net operating income is to increase the number of clients
-reducing the prices of inputs -protecting the selling price -increasing operating efficiency
Options to generate favorable revenue and spending variances include ______________
do not include revenues or net incomes
Performance reports for cost centers _________________
2,050 ( Reason: $380,000 ÷ 1,900 = $200 per client visit. $410,000 - $200 = 2,050 client visits.)
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.
false
T/F: 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
T/F: Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity
True
T/F: Fixed costs are often more controllable than variable costs
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
net income is higher than expected but all or most expense variances are unfavorable
When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that _____________
affects variable costs only
When preparing a flexible budget, the level of activity ________________
planning
a budget that is prepared before the beginning of the period for a specific level of activity is called a ____________ budget
difference between what a cost should have been at the actual level of activity and the actual amount of the cost
a spending variance is the ______________
favorable variance
actual revenue is more than budgeted revenue
flexible budget
an estimate of what revenues and costs should have been, based on the actual level of activity is shown on a ________________
variance analysis
companies use the ___________ _____________ cycle to evaluate and improve performance
leverage
because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is called the _____________ effect
flexible
comparing actual costs to what the costs should have been for the actual level of activity is done on a _____________ budget
static
planning budgets are sometimes called ___________ budgets
flexible
revenues and costs are adjusted as the level of activity changes on a ______________________ budget
management by exception
the concept that focuses on important variances and ignores trivial ones is ___________
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
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
revenue
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
fixed
the percentage change in net income in the flexible budget is greater than the percentage change in activity due to ____________ costs
management by exception
the system that compares actual results to a budget so that significant deviations can be flagged and investigated further is called ________________ ____ _______________
