Chapter 9

In a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

Which of the following may appear on a flexible budget performance report?

all of the above

A budget that is based on the actual activity of a period is known as a:

flexible budget

An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed.

true

When using a flexible budget, a decrease in activity within the relevant range:

decreases total costs

A favorable spending variance occurs when the actual cost is less than the amount of the cost in the static planning budget.

false

A flexible budget performance report contains activity variances but not revenue or spending variances.

false

A revenue variance is favorable if the actual revenue is greater than the revenue in the static planning budget.

false

A spending variance is the difference between the amount of the cost in the static planning budget and the amount of the cost in the flexible budget.

false

An activity variance is the difference between an actual revenue or cost and the revenue or cost in the flexible budget that is adjusted for the actual level of activity of the period.

false

If activity is higher than expected, total fixed costs should be higher than expected. If activity is lower than expected, total fixed costs should be lower than expected.

false

If the actual level of activity is 4% more than planned, then the costs in the static budget should be increased by 4% before comparing them to actual costs.

false

Comparing a static planning budget to actual costs is not a good way to assess whether variable costs are under control.

true

Fixed costs should not be ignored when evaluating how well a manager has controlled costs.

true

Fixed costs should usually be included in performance reports because fixed costs are generally controllable.

true

Flexible budgets can be used when there is more than one cost driver (i.e., measure of activity).

true

In a flexible budget, when the activity declines, the total variable cost also declines.

true

The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity.

true

To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity.

true

When the activity measure is the number of units sold, the revenue variance is favorable if the average actual selling price is greater than expected.

true