chapter 9 smart book

When the activity level increases by 15%, net operating income in the flexible budget will ordinarily increase by ______ 15%.

more than

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

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

a budget that takes into account how costs are affected by changes in level of activity is a(n) ______________ budget

flexible

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

flexible

estimates of what revenues and costs should have been based on the actual level of activity are shown on the ________________ budget

flexible

the concept that focuses on important variances and ignores trivial ones is ________________.

management by exception

if the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is _________________

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

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

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

unfavorable variance

actual revenue Is less than budgeted revenue

favorable variance

actual revenue is more than budgeted revenue

an estimate of what revenue and costs should have been, baed on the actual level of activity is shown on a _________________.

flexible budget

activity variance

flexible-planned

Fancy Nails cost formula for electricity is $40 per operating day plus $0.15 per client served. Calculate Fancy Nails' electricity budget in a month when the business is going to be open for 24 days and they expect to serve a total of 2,100 clients.

$1,275

A flexible budget performance report combines the ______.

activity variances with the revenue and spending variances

T/F:Fixed costs are often more controllable than variable costs.

true

Fancy Nails cost formula for miscellaneous expenses is $30 per operating day plus $0.25 per client served. Fancy Nails' miscellaneous expense budget in a month when the business is going to be open for 25 days and they expect to serve a total of 2,400 clients is

$1,350

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 ______.

250 U

T/F: 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

the variance analysis cycle _______________

begins with the preparation of performance reports

The percentage change in net income in the flexible budget is greater than the percentage change in activity due to _______________ costs

fixed

A company's cost of supplies for when 5,000 units are sold is $7,500 of fixed costs plus $1.25 variable cost per unit. What is the increase in the total cost of supplies if 350 more units are sold than expected?

$437.50 (fixed costs remain the same)

The planning budget, based on 1,000 units, shows revenue of $24,000 and $6,250 for supplies. A total of 1,200 units were actually produced and sold. The flexible budget will show _________________.

-28,800 revenue -7,500 for supplies

the system that compares actual results to a budget so that significant deviations can be flagged and investigated further is called ______________________

management by exception

a flexible budget shows what budgeted amounts should have been at the actual level of activity. as a result of this change in activity, the flexible budget will show a change in total __________________

-revenue -variable cost

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?

-revenue variance is $2,000 Unfavorable -activity variance is $25,000 favorable

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

favorable

what costs and revenues should have been for the actual level of activity is shown on a(n) ______________ budget

flexible

nonprofit organizations

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

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

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 variance are unfavorable

planning budgets are sometimes called _____________ budgets

static

Which of the following statements is true? Multiple choice question.

Fixed costs are often more controllable than variable costs.

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

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

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

T/F: 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

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

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

increase accuracy

unfavorable activity variances may not indicate bad performance because ____________________

increased activity should result in higher variable costs

because of fixed costs, NOI does not change in proportion to changes in the level of activity which is called the _________________ effect

leverage

Variances are more accurate when using ______.

multiple cost drivers

a budget that is prepared at the beginning of the period for a specific level of activity is called a ______________ budget

planning

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 _________________.

-NOI of $19,500 -sales of $44,000

The flexible budget performance report consists of ______.

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

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

-net operating income -revenue

Options to generate a favorable revenue and spending variance include

-reduce the prices of units -increase operating efficiency -protecting the selling pice

the differences 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

revenue and spending variance

actual revenue-flexible revenue

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

companies use the __________________ cycle to evaluate and improve performance

variance analysis