Accounting Chapter 9

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

Options to generate a favorable revenue and spending variance include

static budgets

Planning budgets are sometimes called

flexible budget

Revenues and costs are adjusted as the level of activity changes on an

activity

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

unfavorable

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

planning budget

A budget that is prepared before the beginning of the period for a specific level of activity is called

-$437.50 350 * $1.25= $437.50. Fixed cost remain the same

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 of supplies if 350 more units are sold than expected?

net operating income revenue

A cost center's performance report does not include

for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity

A favorable activity variance may not indicate good performance because a favorable activity variance

activity variances with the revenue and spending variances

A flexible budget performance report combines the

-revenue -variable cost

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

The activity variance is $25,000 favorable The revenue variance is $2,000 unfavorable

A performance report shows that the planning revenue was $200,000, the flexible budget revenue was $225,000, and the actual revenue was $223,000. Which of the following statements are true?

$15,000 unfavorable

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

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

A revenue 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 spending variance is the

false

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

Activity variances help managers understand why actual net income differs from what it 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

flexible budget

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

flexible budget

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

static planning budget

An unchanged planning budget is known as an

leverage effect

Because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is called the

$11,600 and favorable

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?

variance analysis

Companies use the cycle to evaluate and improve performance

flexible budget

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

-$125 U $0.75 * 2,500= $1,875 $1,875-$2,000= $125

Fancy Nail's has an estimate cost for supplies of $0.75 per manicure. June's budget was based on 2,400 manicures and a total cost for supplies of $1,800. June's actual activity was 2,500 manicures. The actual cost of supplies in June was $2,000. Calculate the spending variance for June.

-sales of $44,000 $20 per manicure ($40,000/2,000)*2,200= $44,000 -net operating income of $19,500 $44,000-$22,000-$2,500= $19,500

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

favorable activity variance

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is an

activity variance

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

activity variance

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 an

spending variance

The difference between how much cost should have been, given the actual level of activity, and the actual amount of the cost is an

revenue variance

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 an

performance

The flexible budget report combines activity and revenue and spending variances

fixed or mixed costs

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

-$7,500 for supplies $6,250/1,000= $6.25 per unit * 1,200= $7,500 -$28,800 revenue $24,000/1,000= $24 per unit * 1,200= $28,800

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

actual cost is less than what the cost should have been at the actual level of activity

The spending variance is labeled as favorable when the

begins with the preparation of performance reports

The variance analysis cycle

revenue and spending

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.

increased activity should result in higher variable costs

Unfavorable activity variances may not indicate bad performance because

net income is higher than expected but all or most expense variances are unfavorable

When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that

exceeds

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

fixed costs are often more controllable than variable costs

Which of the flowing statements is true?