ACC 208 - Chapter 10 LS

The flexible budget performance report consists of...

-Revenue and spending variances -Activity variances -The planning budget, flexible budget and actual results

Nonprofit organizations...

-Usually have significant funding sources other than sales -May have revenue sources that are fixed

A flexible budget shows...

-What revenue should have been at the actual level of activity -What fixed costs should have been at the actual level of activity -What variable costs should have been at the actual level of 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 company's net operating income activity variance is favorable while the revenue and spending variance for net operating income is unfavorable. This indicates that...

Activity was greater than expected but the profit was not as large as it should have been for the actual level of activity

If management plans the budget based on 40 hours of operation and weather causes the business to be opened for only 32, what needs to be adjusted on the flexible budget?

Hourly wages

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

Management by exception

Comparing actual costs to the static planning budget is...

Only appropriate if all costs are fixed

The monthly cost formula for utilities is $200 + $0.02q, where q is the number of units produced. Budgeted cost of utilities for a month in which 6,000 units are produced equals...

$320 ($200 + $0.02 x 6,000)

If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $0.20 unit, and actual fixed costs total $500, which of the following are true?

-$4,700 net income [$6,000 - (4,000 x $0.20) - $500] -$1,300 in total costs [4,000 units x $0.20 + $500]

Common errors in preparing performance reports include...

-Assuming all costs are variable -Assuming all costs are fixed

When preparing a flexible budget...

-Higher levels of activity increased some costs -Lower levels of activity reduce some costs

When static planning budget is compared to actual results at a different activity level...

-Increases or decreases in net income are not adequately explained -Changes in costs are expected due to changes in activity

T/F: Most organizations can adequately explain costs by using a single cost driver.

False

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

Fixed

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

Flexible

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

T/F: A discrepancy between the budgeted profit and the actual profit can be caused by a decrease in the actual level of activity.

True

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

True

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

Unfavorable

Which business would likely receive funding from donations, fundraisers and/or endowments?

University or school

The difference between the actual amount and the planned amount at the actual level of activity is a flexible budget activity _____.

Variance

Companies use the _____ _____ cycle to evaluate and improve performance.

Variance Analysis

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

-Net operating income -Revenue

When the planned level of activity is 900 units and the actual level of activity is 1,000 units, the total variable cost for supplies on the flexible budget...

-Should be higher than on the planning budget -Could be higher or lower than the actual cost of supplies

Unfavorable activity variances may not indicate bad performance because...

Increased activity should result in higher variable costs

A significant amount of funding from sources other than sales usually occurs in _____ organizations.

Nonprofit