A202 Smartbook chapter 9

The flexible budget performance report consists of:

- revenue and spending variances. - the planning budget, flexible budget and actual results. - activity variances.

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 Revenue and spending variances help explain the difference.

Which of the following statements is true?

Fixed costs are often more controllable than variable costs.

When preparing a flexible budget, the level of activity:

affects variable costs only

The variance analysis cycle:

begins with the preparation of performance reports

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

flexible

Revenues and costs are adjusted as the level of activity changes on a ______ budget

flexible

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

flexible budget

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

planning

Options to generate a favorable revenue and spending variance include:

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

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

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

Companies use the _____ ______ cycle to evaluate and improve performance.

variance analysis

A flexible budget shows: Multiple select question.

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

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

activity

A cost center's performance report does not include:

net operating income

Planning budgets are sometimes called _______ budgets.

static

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

unfavorable

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. Multiple choice question.

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

The spending variance is labeled as favorable when the: Multiple choice question.

actual cost is less than what the cost should have been at the actual level of activity

A cost center's performance report does not include: Multiple select question.

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

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 $28,800 revenue $6,250/1,000 = $6.25 per unit x 1,200 = $7,500. $24,000/1,000 = $24 per unit x 1,200 = $28,800.

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 Net operating income of $19,500

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

A revenue variance is the: Multiple choice question.

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

Performance reports for cost centers: Multiple choice question.

do not include revenues or net income

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

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: Multiple choice question.

increased activity should result in higher variable costs.

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 $120,000/5,000 = $24 per unit x 4,500 = $108,000