Chapter 9 learn smart

When a change in sales mix causes the average selling price to be ______ the amount expected, the revenue variance is labeled favorable.

higher than

Using multiple cost drivers on a flexible budget report will generally ______.

increase accuracy

The spending variance is labeled as favorable when the actual cost is ______ level of activity.

less than what the cost should have been at the actual

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

management by exception

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

mixed and fixed costs

When the activity level increases by 15%, net operating income in the flexible budget will ordinarily increase by ______ 15%.

more than

Variances are more accurate when using ______.

multiple cost drivers

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

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

net operating income revenue

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

unfavorable

Unfavorable variance

Actual revenue is less than budgeted revenue.

Favorable variance

Actual revenue is more than budgeted revenue.

companies use the _________ ________ cycle to evaluate and improve performance

Variance analysis

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. The actual cost of supplies in June was $2,000. Calculate the spending variance for June.

$125 U

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

Nonprofit organizations Blank______.

have significant funding sources besides sales may have revenue sources that are fixed

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.

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

If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is ______.

$108,000 $120,000 ÷ 5,000 = $24 per unit × 4,500 = $108,000

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 Flexible budget expense: $16,000 ÷ 4,000 = $4 per unit × 2,900 units = $11,600.

The planning budget, based on 1,000 units, shows revenue of $24,000 and $6,250 for supplies. A total of 1,200 units were actually produced and sold. The flexible budget will show ______.

$7,500 for supplies $6,250 ÷ 1,000 = $6.25 per unit × 1,200 = $7,500 $28,800 revenue $24,000 ÷ 1,000 = $24 per unit × 1,200 = $28,800

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

1350

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

15000 Unfavorable

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 $380,000 ÷ 1,900 = $200 per client visit. $410,000 ÷ $200 = 2,050 client visits.

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 Flexible budget amount for revenue = $20 per manicure × 2,500 manicures = $50,000. Revenue variance = $50,000 - $49,750 = $250 U.

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

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

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(n) ______ variance.

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(n) __________ variance.

activity

The flexible budget performance report consists of ______.

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

A flexible budget performance report combines the ______.

activity variances with the revenue and spending variances

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

affects variable costs only

A revenue variance is the ______.

difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period.

Performance reports for cost centers ______.

do not include revenues or net income

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

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

flexible

Fancy Nail's monthly rent is $2,500. The company's static budget for March was based on the activity level of 2,000 manicures. Total sales was budgeted at $40,000 and nail technician wages (a variable cost based on the number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nails' flexible budget will show ______.

net operating income of $19,500 $44,000 - $22,000 - $2,500 = $19,500 sales of $44,000 $20 per manicure ($40,000 ÷ 2,000) × 2,200 = $44,000

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

planning

Options to generate favorable revenue and spending variances include

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

A flexible budget shows what budgeted amounts should have been at the actual level of activity. As a result of this change in activity, the flexible budget will show a change in total ______.

revenue variable cost

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

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 Blank______ budgets.

static

The prominent difference between performance reports in nonprofit and for-profit organizations is that nonprofit organizations ______.

usually receive significant funding from sources other than sales

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