Chapter 9: Flexible Budgets and Performance Analysis

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.

2050

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

A budget that is prepared at the beginning of the period for a specific level of activity is called a ______ budget.

planning

A cost center's performance report does not include ______.

revenue and net operating income

A flexible budget performance report combines the ______.

activity variances with the revenue and spending variances

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

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

static

True or false: Fixed costs are often more controllable than variable costs.

true

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

unfavorable

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

The variance analysis cycle _____.

begins with the preparation of performance reports

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

exceeds

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

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

flexible budget

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

The system that compares actual results to a budget so that significant deviations can be flagged and investigated further is called

management by exception

Nonprofit organizations ______.

may have revenue sources that are fixed usually have significant funding sources other than sales

Variances are more accurate when using ______.

multiple cost drivers

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

Companies use the___________cycle to evaluate and improve performance.

variance analysis

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

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

Match the definition with the term.

unfavorable variance-actual revenue is less than what it should have been favorable variance-actual revenue is more than what it should have been

What costs and revenues should have been for the actual level of activity is shown on a (n)_____ budget

flexible

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

flexible

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

flexible

When the activity level increases by 15%, net operating income in the flexible budget will ordinarily increase by ______ 15%.

more than

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

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.

1275

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

$11,600 and favorable

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?

$28,800 revenue $7,500 for supplies

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 ______.

-net operating income of $19,500 -sales of $44,000

A flexible budget shows ______.

-what fixed costs should have been at the actual level of activity -what revenue should have been at the actual level of activity -what variable costs should have been at the actual level of 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

acivity

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

When preparing a flexible budget, the level of activity ______.

affects variable costs only

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 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

Using multiple cost drivers on a flexible budget report will generally ______.

increase accuracy

Options to generate a favorable revenue and spending variance include ______.

increase operating efficiency reduce the prices of inputs protecting the selling price

Unfavorable activity variances may not indicate bad performance because ______.

increased activity should result in higher variable costs

The concept that focuses on important variances and ignores trivial ones is ______.

management by exception

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

fixed

Fancy Nails cost formula for miscellaneous expenses is $30 per operating day plus $0.25 per client served. Fancy Nails' miscellaneous expense budget in a month when the business is going to be open for 25 days and they expect to serve a total of 2,400 clients is $

1350

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 $

15000 and U

A company's cost of supplies for 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

Match the definition with the term.

Unfavorable variance matches ----> Actual revenue is less than budgeted revenue. Actual revenue is less than budgeted revenue. Favorable variance matches ----> Actual revenue is more than budgeted revenue. Actual revenue is more than budgeted revenue.

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

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.

Match the comparisons made on the performance report.

activity variance-subtract planning budget from flexible budget revenue and spending variances-subtract flexible budget from actual results

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

favorable

Which of the following statements is true?

Fixed costs are often more controllable than variable costs.