Chapter 9. Flexible Budgets and Performance Analysis

Match the definition with the term.

Unfavorable variance matches Actual revenue is less than budgeted revenue. Actual revenue is less than budgeted revenue. Favorable variance matches Actual revenue is more than budgeted revenue. Actual revenue is more than budgeted revenue.

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

When preparing a flexible budget, the level of activity ______.

affects variable costs only

The variance analysis cycle ______.

begins with the preparation of performance reports

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 Reason: Flexible budget expense: $16,000 ÷ 4,000 = $4 per unit × 2,900 units = $11,600. Since the flexible budget expense < planning budget expense, the variance is favorable.

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 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

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

A revenue variance is the ______.

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

Using multiple cost drivers on a flexible budget report will generally ______.

increase accuracy

Nonprofit organizations ______.

may have revenue sources that are fixed usually have significant funding sources other than sales

Variances are more accurate when using ______.

multiple cost drivers

When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that ______.

net income is higher than expected but all or most expense variances are unfavorable

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

performance

Options to generate a favorable revenue and spending variance include ______

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

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

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

static

A flexible budget performance report combines the ______.

activity variances with the revenue and spending variances

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(n) revenue Blank variance.

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(n) variance

spending

Planning budgets are sometimes called ______ budgets.

static

The prominent difference between performance reports in nonprofit and for-profit organizations is that nonprofit organizations ______.

usually receive significant funding from sources other than sales

Companies use the cycle to evaluate and improve performance.

variance analysis

A cost center's performance report does not include ______.

net operating income

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

activity

A performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and actual revenue was $230,000. The activity variance is $

$15,000 unfavorable

Fancy Nails' budgeted revenue is $20 per manicure. The planning budget for June was based on 2,400 manicures. During June, the actual revenue was $49,750 for 2,500 manicures. The revenue variance for June is ______.

250U

True or false: A static budget is being compared to actual activity. The variance is F for net income but U for most expenses. This suggests that actual activity was lower than budgeted.

False

Fancy Nails has an estimated cost for supplies of $0.75 per manicure. June's budget was based on 2,400 manicures and a total cost for supplies of $1,800. June's actual activity was 2,500 manicures. Total cost of supplies in June was $2,000. Calculate the spending variance for June.

Reason: Flexible budget amount for supplies: $0.75 × 2,500 manicures = $1,875. Spending variance: $1,875 - $2,000 = $125 U.

A performance report shows that the planning 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 activity variance is $25,000 Favorable. The revenue variance is $2,000 Unfavorable.

Performance reports for cost centers ______.

do not include revenues or net income

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

exceeds

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n)

favorable

Revenues and costs are adjusted as the level of activity changes on a(n) budget.

flexible

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

unfavorable

A cost center's performance report does not include ______.

revenue net operating income