ACTG 2300 - Chapter 9

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

Companies use the _______ ________ cycle to evaluate and improve performance.

Blank 1: variance Blank 2: analysis

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 spending variance is considered unfavorable if

the actual amount is less than the flexible budget amount

An activity variance for the expense item is considered favorable if

the flexible amount is less than the planning amount

An activity variance is the difference between

the planning budget and the flexible budget

The variance analysis cycle ______.

begins with the preparation of performance reports

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

exceeds

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

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

flexible budget

The flexible budget _________ report combines activity and revenue and spending variances.

performance

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

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 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

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

static

Planning budgets are sometimes called ______ budgets.

static

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

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

Activity variance

Subtract planning budget from flexible budget

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

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. Reason: The revenue variance is the difference between the flexible budget and actual results. - The activity variance is $25,000 Favorable. Reason: The activity variance is the difference between the planning budget and the flexible budget.

Which of the following may appear on a flexible budget performance report - A favorable revenue variance - An unfavorable spending variance - An unfavorable activity variance - All of the above may appear on a flexible budget performance report

All of the above may appear on a flexible budget performance report

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 $_______ _______.

Blank 1: 15,000 Blank 2: U, unfavorable, or unfavourable

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

Blank 1: flexible or flex

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

The fixed cost per unit will decrease.

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

activity

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

affects variable costs only

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

Using multiple cost drivers on a flexible budget report will generally ______.

increase accuracy

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

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

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

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

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

Blank 1: unfavorable, U, or unfavourable

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

net operating income revenue

Revenue and spending variances

Subtract flexible budget from actual results