Chapter 9 (Exam 3)

Planning budgets are sometimes called _______ budgets. Multiple choice question. static flexible

static (Reason: A planning budget is prepared using a static level of activity. A flexible budget takes into account what costs should have been at the actual level of activity.)

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

unfavorable

When actual revenue ______ what the revenue should have been, the variance is labeled favorable. Multiple choice question. is less than is equal to exceeds

exceeds

What costs and revenues should be for the actual level of activity is shown on a (n) _________ budget.

flexible

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. Multiple choice question. activity both revenue and spending and activity revenue and spending

revenue and spending

Which of the following statements is true? Multiple choice question. A cost is fixed if it is proportional to activity. It is easier to significantly reduce variable costs than to reduce fixed costs. Fixed costs are often more controllable than variable costs.

Fixed costs are often more controllable than variable costs.

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

static

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. spending revenue activity

activity

Select all that apply 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 Favorable. The activity variance is $25,000 Unfavorable. The activity variance is $25,000 Favorable. The revenue variance is $2,000 Unfavorable.

The activity variance is $25,000 Favorable. The revenue variance is $2,000 Unfavorable.

One option to generate a favorable ______ variance for net operating income is to increase the number of clients. Multiple choice question. activity revenue and spending

activity

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

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? Multiple choice question. $108,000 No change in revenue $180,000 $118,000

$108,000

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? Multiple choice question. $108,000 No change in revenue $180,000 $118,000

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

When preparing a flexible budget, the level of activity: Multiple choice question. affects variable costs only affects fixed costs only affects both fixed and variable costs has no effect on costs

affects variable costs only

The variance analysis cycle: Multiple choice question. begins with the preparation of the budget begins with the preparation of performance reports includes the investigation of all variances is used to assign blame for poor performance

begins with the preparation of performance reports

A revenue variance is the: Multiple choice question. actual total revenue earned difference between what revenue should have been at the actual level of activity and the actual revenue difference between total revenue in the planning budget and actual total revenue difference between what a cost should have been at the actual level of activity and the actual amount of the cost

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. are significantly different than reports prepared for other departments do not include revenues or net income are not common in most organizations

do not include revenues or net income

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

The flexible budget ______ report combines activity and revenue and spending variances.

performance

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

Define + Activity variance + Revenue and spending variances

+ Activity variance: Subtract planning budget from flexible budget + Revenue and spending variances: Subtract flexible budget from actual results

Companies use the _________ __________ cycle to evaluate and improve performance.

variance; analysis

Unfavorable activity variances may not indicate bad performance because: Multiple choice question. increased activity should result in higher variable costs. costs should not change as activity changes. increased activity should result in higher fixed costs.

increased activity should result in higher variable costs. Reason: Fixed costs should not change with changes in 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 planned level of activity amount spent is less than what was spent last period actual cost is less than what the cost should have been at the actual level of activity actual cost is more than what the cost should have been at the actual level of activity

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: Multiple choice question. for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity. may occur simply because the purchasing department acquired low quality supplies at a discount. for a fixed cost will occur simply because the actual level of activity is less than the budgeted level of activity.

for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity.

Select all that apply A flexible budget shows: why the actual level of activity differs from the budgeted 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 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 what fixed costs should have been at the actual level of activity

Select all that apply 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 $6,250 for supplies $7,500 for supplies $24,000 revenue

$28,800 revenue (Reason: $24,000/1,000 = $24 per unit x 1,200 = $28,800.) $7,500 for supplies (Reason: $6,250/1,000 = $6.25 per unit x 1,200 = $7,500.)

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

False Reason: Revenue and spending variances help explain the difference.

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

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

Select all that apply Options to generate a favorable revenue and spending variance include: protecting the selling price increase operating efficiency reduce the prices of inputs increase the number of clients

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

Select all that apply A cost center's performance report does not include: revenue costs net operating income variances

revenue net operating income