Learn Smart 9

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

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

If management plans the budget based on 40 hours of operation and weather causes the business to be opened for 32, what needs to be adjusted on the flexible budget

hourly wages

The difference between what total sales should have been, given the actual level of activity for the period, and the actual total sales is a __________ variance

revenue

An unchanged planing budget is known as a ___________ planning budget

static

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

unfavorable

Comparing actual costs to what the costs should have been for the actual level of activity is done on an ___________ budget

flexible

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

management by exception

Variances are more accurate when using:

multiple cost drivers

Companies use the _______ _________ cycle to evaluate and improve performance

variance analysis

Options to generate a favorable revenue and spending variance include

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

Common errors in preparing performance reports include:

-assuming all costs are variable -assuming all costs are fixed

A cost center's performance report does not include

-revenue -net operating income

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

A company's cost of supplies for when 5000 units are sold is $7500 of fixed costs plus $1.25 variable cost per unit. What is the increase in the total cost of supplies if 350 more unites are sold than expected?

350 x 1.25= 437.50

The planning budget calls for total variable costs for supplies to be $6250 based 1,000 units with planned revenue at $24,000. A total 1200 units were actually produces and sold. What amounts should appear on the flexible budget?

6250/1000= 6.25 x 1200= 7500 24,000/1,000=24 x 1200= 28,800

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

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

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

false

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

fixed