ACCT3030 Chapter 9

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

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

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 flexible budget performance report combines the ______.

activity variances with the revenue and spending variances

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

True or false: Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity.

false

True or 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->The opposite is true. This suggests that actual activity was higher than expected which resulted in higher net income and expenses.

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n)____activity variance.

favorable

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

fixed

Revenues and costs are adjusted as the level of activity changes on a(n)___ budget

flexible

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

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

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

Performance reports for cost centers ______.

do not include revenues or net income

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

exceeds

Fancy Nails cost formula for electricity is $40 per operating day plus $0.15 per client served. Calculate Fancy Nails' electricity budget in a month when the business is going to be open for 24 days and they expect to serve a total of 2,100 clients.

$1,275 Electrical cost = $40 per day × 24 days + $0.15 per client × 2,100 clients = $1,275

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?

$1,300 in total costs 4,000 units × $0.20 + $500 = $1,300 total costs $4,700 net income $6,000 - (4,000 × $0.20) - $500 = $4,700 net income.

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?

$11,600 and favorable Flexible budget expense: $16,000 ÷ 4,000 = $4 per unit × 2,900 units = $11,600. Since the flexible budget expense < planning budget expense, the variance is favorable.

Fancy Nails' budgeted revenue is $20 per manicure. The planning budget for June was based on 2,400 manicures. During June, the actual revenue was $49,750 for 2,500 manicures. The revenue variance for June is ______.

$250 U Flexible budget amount for revenue = $20 per manicure × 2,500 manicures = $50,000. Revenue variance = $50,000 - $49,750 = $250 U.

Fancy Nails cost formula for miscellaneous expenses is $30 per operating day plus $0.25 per client served. Fancy Nails' miscellaneous expense budget in a month when the business is going to be open for 25 days and they expect to serve a total of 2,400 clients is $

1350

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 $

15,000 Unfavorable

Revenue on the planning budget is expected to be $380,000 for 1,900 client visits. The revenue on the flexible budget is $410,000, showing that there were actually ______ client visits.

2,050 $380,000 ÷ 1,900 = $200 per client visit. $410,000 ÷ $200 = 2,050 client visits.

Unfavorable variance

Actual revenue is less than budgeted revenue.

favorable variance

Actual revenue is more than budgeted revenue.

Which of the following statements is true?

Fixed costs are often more controllable than variable costs.

Revenue and spending variances

Subtract flexible budget from actual results

Activity variance

Subtract planning budget from flexible budget

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 Favorable.

The variance analysis cycle ______.

begins with the preparation of performance reports

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

A revenue variance is the ______.

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

Unfavorable activity variances may not indicate bad performance because ______.

increased activity should result in higher variable costs

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

leverage

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

management by exception

The system that compares actual results to a budget so that significant deviations can be flagged and investigated further is called

management by exception

Variances are more accurate when using ______.

multiple cost drivers

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

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

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

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 ______.

revenue variable cost

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

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 ______.

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

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

An unchanged planning budget is known as a(n)__ planning budget

static

Planning budgets are sometimes called ______ budgets.

static

True or false: 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

Nonprofit organizations ______.

usually have significant funding sources other than sales may have revenue sources that are fixed

The prominent difference between performance reports in nonprofit and for-profit organizations is that nonprofit organizations ______.

usually receive significant funding from sources other than sales

Companies use theCompanies use the____cycle to evaluate and improve performance.

variance analysis