Chapter 9 - Accounting

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

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

fixed

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

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

Flexible

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

Affects variable costs only

The variance analysis cycle ______.

Begins with the preparation of performance reports

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

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

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

management by exception

Revenue and spending variance

Subtract flexible budget from actual results

Activity Variance

Subtract planning budget from flexible budget

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n) ______ (U/F) activity variance

favorable

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 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 (50,000-49,750 = 250)

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

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

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

Planning budgets are sometimes called ______ budgets.

Static

If the planned budget revenue for 5,000 units is $120,000, what is the flexible budget revenue if the actual activity is 4,500 units?

108,000

Fancy Nails has an estimated 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. Total cost of supplies in June was $2,000. Calculate the spending variance for June.

125 U

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

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

unfavorable variance

Actual Revenue is less than budgeted

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

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

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

Favorable Variance

Actual revenue is more than budgeted revenue

Unfavorable activity variances may not indicate bad performance because ______.

Increased activity should result in higher variable costs.

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

Exceeds

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

Comparing actual costs to what the costs should have been for the actual level of activity is done on a(n) ______ budget.

Flexible

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

Management by exception

A budget that is prepared at the beginning of the period for a specific level of activity is called a ______ budget.

Planning

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

Variance Analysis

A flexible budget performance report combines the ______.

activity variances with the revenue and spending variances

A revenue variance is the _____

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