Chapter 9 - Flexible Budgets and Performance Analysis Assignment

Unfavorable (Spending Variance) Favorable (Spending Variance)

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

Comparing actual costs to static planning budget costs only makes sense if the costs are __.

Fixed

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

Non for profit organizations

Performance reports for cost centers: do not include

Revenues or net income

Options to generate a favorable revenue and spending variance include:

- Reduce the prices of inputs - Protecting the selling price - Increase operating efficiency

The difference between a revenue or cost item in the static planning budget and the asme item in the flexible budget. An activity variance is due solely to the difference between the level of activity assumed int eh planning budget and the actual level of activity used in the flexible budget.

Activity variance

Leverage effect

Because of the existence of fixed costs, net operating income does not change in proportion to changes in the level of activity. The percentage changes in net operating income are ordinarily larger than the percentage increases in 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

Revenue variance

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

T/F: Activity variance help managers understand why actual net income differs from what it should have been at the actual level of activity

False

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

Static

T/F:Fixed costs are often more controllable than variable costs

True

Match the definition with the term. ___________ - Variance-actual revenue is less than what it should have been __________ - Variance-actual revenue is more than what it should have been

Unfavorable variance Favorable variance

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

Variance analysis