Accounting Chapter 9

Which of the following scenarios demonstrates the leverage effect on net operating income due to the existence of fixed costs?

A 25% increase in sales resulting in a 30% increase in net operating income.

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

The difference is that because the cost formulas based on more than one cost driver are more accurate than the cost formulas based on just one cost driver, the variances will also be more __________.

accurate

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

flexible

Because of the existence of fixed costs, net operating income does not change in proportion to changes in the level of activity. There is a _________ effect. The percentage changes in net operating income are ordinarily larger than the percentage increases in activity.

leverage

What is defined as a management system that compares actual results to a budget so that significant deviations can be flagged as exceptions and investigated further?

management by exception

An unfavorable variance of $5,000 in sales is determined by comparing the flexible budget (9,000 units) and the planning budget (10,000 units). What type of variance is described?

Activity variance

Paradise Company's planning budget for 10,000 units showed sales of $500,000. The flexible budget for 12,000 units showed sales of $600,000. What is the variance of $100,000 called if this variance was due only to an increase in unit sales?

Activity variance

What is The difference between a revenue or cost item in the flexible budget and the same item in the static planning budget. it is due solely to the difference between the actual level of activity used in the flexible budget and the level of activity assumed in the planning budget?

Activity variance

What is an estimate of what revenues and costs should have been, given the actual level of activity for the period.?

Flexible budget

All of the following are reasons for preparing a flexible budget with multiple cost drivers EXCEPT ________

It eliminates the need for preparing variance analysis.

Costs and variances computed using multiple cost drivers are likely to be _________

More accurate

Which of the following is NOT a column on a flexible budget performance report?

Net operating income

What kind of variance: An unfavorable variance of $5,000 in cost of goods sold is determined by comparing the actual results (10,000 units) and the flexible budget (10,000 units).

Spending Variance

The flexible budget ___________ report combines activity and revenue and spending variance

performance

What is prepared before the period begins and is valid for only the planned level of activity. A static planning budget is suitable for planning but is inappropriate for evaluating how well costs are controlled?

planning budget

The difference between the actual total revenue and budgeted total revenue at the actual level of activity is called a(n) ________.

revenue variance

What 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. If actual revenue exceeds what the revenue should have been, the variance is labeled favorable

revenue variance

What is the difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity. If the actual cost is greater than what the cost should have been, the variance is labeled as unfavorable.

spending variance

an unchanged planning budget is known as a(n) _____ planning budget.

static

What beings with the preparation of performance reports?

variance analysis cycle