Chapter 9

Common errors in preparing performance reports include:

assuming all costs are fixed assuming all costs are variable

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

fixed costs

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

flexible

Revenues and costs are adjusted as the level of activity changes on a ____________________ budget.

flexible

unfavorable activity variances may not indicate bad performance because:

increased activity should result in higher variable costs

When a 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

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

spending variance

companies use the _________________________ ______________________________ cycle to evaluate and improve performance.

variance analysis

An unchanged planning budget is known as

static planning budget

revenue and spending variances

subtract flexible budget from actual results

activity variance

subtract planning budget from flexible budget

Fixed costs are often more controllable than variable costs. True of false?

true

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

unfavorable revenue (The revenue variance is favorable when actual revenue > flexible budget revenue) favorable activity (The activity variance is favorable when flexible budget revenue>planning budget revenue

nonprofit organizations:

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

A flexible budget shows:

what fixed costs should have been at the actual level of activity what revenue 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 __________________variance

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

performance reports for cost centers

do not include revenues or net income