Chapter 9: Flexible Budgets and Performance Analysis

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 revenue variance is the ______.

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

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

Using multiple cost drivers on a flexible budget report will generally ______. not impact the planning budget have no impact on expected or actual net income increase accuracy

increase accuracy

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

performance

A ______ variance is the difference between how much revenue should have been given the actual level of activity and the actual revenue.

revenue

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

spending

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

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

unfavorable

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

unfavorable

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

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

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

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

activity

Flexible Budget

An estimate of what revenues and costs should have been, given the actual level of activity for the period. When used in a performance evaluation, actual costs are compared to what the costs should have been for the actual level of activity during the period rather than to the static planning budget.

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

Revenue & Net Operating Income

Revenue and spending variances

Subtract flexible budget from actual results

Activity variance

Subtract planning budget from flexible budget

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

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

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

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

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

performance

A budget that is prepared at the beginning of the period for a specific level of activity is a _______ budget

Planning

Planning Budget

Prepared before the period beings and is valid for only the planned level of activity. Inappropriate for evaluating how well costs are controlled.

Revenue Variance

The difference between what the total revenue should have been, given the actual level of activity for the period, and the actual total revenue. If actual revenue exceeds what the revenue should have been; favorable. If actual revenue is less than what the revenue should have been; unfavorable.

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 $______ .

$1,350

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 _______. (Enter the whole dollar amount and indicate if the variance is F or U.)

$15,000 ; 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 (Reason: $380,000 ÷ 1,900 = $200 per client visit. $410,000 ÷ $200 = 2,050 client visits.)

Unfavorable variance is when __________(1) and Favorable variance is when __________ (2)

(1).......Actual revenue is less than budgeted revenue. (2).......Actual revenue is more than budgeted revenue.

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. -$960 -$315 -$1,275

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

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 activity variance is $25,000 Unfavorable. The revenue variance is $2,000 Favorable. The activity variance is $25,000 Favorable. The revenue variance is $2,000 Unfavorable.

-The activity variance is $25,000 Favorable. -The revenue variance is $2,000 Unfavorable.

The flexible budget performance report consists of ______.

-the planning budget, flexible budget and actual results -revenue and spending variances -activity variances

A performance report shows that the planned revenue was $200,000, the flexible budget revenue was $225,000, and actual revenue was $223,000. Which of the following statements are true? - Revenue Variance is $2000 Favorable -Activity Variance is $25,000 Favorable -Activity Variance is $25,000 Unfavorable -Revenue Variance is $2000 Unfavorable

AV = $25,000 Favorable (Reason: The activity variance is the difference between the planning budget and the flexible budget.) RV = $2000 Unfavorable (Reason: The revenue variance is the difference between the flexible budget and actual results.)

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 (true is wrong b/c it suggests the opposite where actual activity is higher than expected which results in higher net income and expenses)

Spending Variance

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. If actual cost is greater than what the cost should have been; unfavorable. If actual cost is less than what the cost should have been; favorable.

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

The fixed cost per unit will decrease.

Activity Variance

Unfavorable variances don't always indicate bad performances, and favorable variances don't always indicate good performance. The difference between a revenue or cost item in the static planning budget and the same item in the flexible budget. Is due solely to the difference between the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget.

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

a flexible budget

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

Variances are more accurate when using ______.

multiple cost drivers

A cost center's performance report does not include ______. net operating income flexible costs fixed costs

net operating income

The spending variance is labeled as unfavorable when the ______.

the actual amount is less than the flexible budget amount

The activity variance is labeled as favorable when the ______.

the flexible budget amount is less than the planning budget amount

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

unfavorable

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; and what variable costs should have been at the actual level of activity