Accounting: Chapter 10

Which costs are more controllable, fixed or variable?

fixed

When is spending variance label as favorable?

when the 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:

revenue and NOI

If actual level of activity differs from the level of activity used on the planning budget then...

variable costs may be higher or lower than expected

what are the most common errors in preparing performance reports?

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

when the static budget is compared to actual result at a different activity level...

-changes in costs are expected due to changed in activity -increases or decrease in NI are not adequately explained

Activity Variance = vs Revenue and Spending Variances

Flexible budget - Planning Budge Actual results - flexible budget

What happens to NOI in the flexible budget is activity level increases by X%?

NOI will increase more than X%

Flexible budget definition

a budget that takes into account how costs are affected by changed in level of activity

a favorable activity variance for a cost 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 costs are fixed, then it makes sense to compare...

actual costs to static planning budget costs

Planning budgets are sometimes called...

static budgets

Activity variance definition

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

spending variance definition

the difference between how much a cost should have been, given the actual level of activity, and the actual amount of cost

If activity levels are lower than expected, total ____ costs should be lower than expected

variable