ACCT 2210 Ch. 9 and 11

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

more than

The three methods commonly used for transfer pricing are ______.

negotiation, full cost, market price

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

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

net operating income

To generate a favorable activity variance for net operating income, managers should take action to increase

number of clients (activity)

Options to generate a favorable revenue and spending variance include ______.

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

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 variances

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)

revenue variance

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)

spending variance

Companies use the ___________________ cycle to evaluate and improve performance

variance analysis

Examples of assets not included in operating assets

land held for future use, an investment in another company, or a building rented to someone else

An asset's net book value decreases, ROI

increases over time

Drawbacks of using variable or full costing to set transfer prices include ______.

- a lack of departmental profit for the supplying department - a lack of incentive to control costs because they are simply passed to another department - suboptimization that may occur as fixed costs per unit may push the transfer price above market price

How is margin improved?

- increasing selling prices - reducing operating expenses - increasing unit sales

Negotiated transfer prices ______.

- preserve the autonomy of the divisions - use the expertise of managers in weighing the costs and benefits of the transfer - are consistent with decentralization

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

HIGHER than budgeted

The net operating income that an investment center earns above the minimum required return on its average operating assets is ______.

Residual income

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 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

Why does increasing unit sales increase margin?

because of operating leverage

Operating assets

cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes

Excess funds tied up in operating assets depress _____________ and lower __________

depress turnover, lower ROI

A revenue variance is the ______.

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

Does net book value discourage or encourage equipment replacement?

discourages equipment replacement

Estimates of what revenues and costs should have been based on the actual level of activity are shown on the __________

flexible budget

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

Flexible budgets take into account

how changes in activity affect costs

Increasing selling prices and reducing operating expenses both do what to net income (increase/decrease)

increase