Chapter 9: Flexible Budgets and Performance Analysis

A(n) ________ variance is the difference between a revenue or cost item in the static planning budget and the same item in the flexible budget at the actual level of activity. a) activity b) revenue c) spending

a) activity

A favorable activity variance for a cost may not indicate good performance because a favorable activity variance: a) for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity. b) may occur simply because the purchasing department acquired low quality supplies at a discount. c) for a fixed cost will occur simply because the actual level of activity is less than the budgeted level of activity.

b) may occur simply because the purchasing department acquired low quality supplies at a discount.

Unfavorable activity variances may not indicate bad performance because: a) increased activity should result in higher fixed costs. b) costs should not change as activity changes c) increased activity should result in higher variable costs

c) increased activity should result in higher variable costs