A306 SB Ch 09

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

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

An estimate of what revenue and costs should have been, based on the actual level of activity is shown on a __________.

flexible budget

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

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

static

Companies use the __________ _________ cycle to evaluate and improve

variance analysis

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 $_________ and Unfavorable or Favorable.

$15,000 Unfavroable

Planning budgets are sometimes called __________ budgets.

Static

A flexible budget performance report combines the _________.

activity variances with the revenue and spending variances

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

affects variable costs only

The variance analysis cycle _________.

begins with the preparation of performance reports

Possible causes of a spending variance include: - using too many inputs for the actual level of activity - changes in technology - producing more or less product than expected - paying less than expected for inputs

using too many inputs for the actual level of activity changes in technology paying less than expected for inputs

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

False

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

Fixed costs are often more controllable than variable costs.

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

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

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

True Reason: It is fairly easy to adjust some fixed costs such as advertising or insurance. It is often more difficult to changes variable costs that are related to activity.

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

activity

A revenue variance is the _________.

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

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

exceeds

Unfavorable activity variances may not indicate bad performance because

increased activity should result in higher variable costs

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 _________

net operating income of $19,500 Reason: $44,000 - $22,000 - $2,500 sales of $44,000 Reason: $20 per manicure ($40,000 ÷ 2,000) × 2,200 = $44,000

A budget that is prepared at the beginning of the period for a specific level of activity is called a ______ budget.

planning

Revenue variances can be caused by _______.

poor accounting controls changes in the mix of products sold changes in selling price

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 $24,000 revenue $7,500 for supplies $6,250 for supplies

$28,800 revenue Reason: $24,000 ÷ 1,000 = $24 per unit × 1,200 = $28,800 $7,500 for supplies Reason: $6,250 ÷ 1,000 = $6.25 per unit × 1,200 = $7,500

Question Mode Multiple Choice Question 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 budget that takes into account how costs are affected by changes in level of activity is a(n) ______ budget

flexible

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

Options to generate a favorable revenue and spending variance include - increased the number of clients - protecting the selling price - increase operating efficiency - reduce the prices of inputs

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

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

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 ________ and _________.

revenue variable cost

Match the comparisons made on the performance report. Revenue and spending variance - Subtract planning budget from flexible budget - Subtract flexible budget from actual results

Subtract flexible budget from actual results

Match the comparisons made on the performance report. Activity variance - Subtract planning budget from flexible budget - Subtract flexible budget from actual results

Subtract planning budget from flexible budget

To understand why actual net operating income differs from what it should have been at the actual level of activity, the Blank______ variances should be analyzed.

revenue and spending