Managerial Accounting Chapter 9

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 budgeted at $40,000 and nail technician wages (a variable cost based on number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nail's flexible budget will show:

1. Sales of $44,000 sales = $20/manicure (40,000/2,000) x 2,200 2. Net operating income of $19,500$44,000-22,000-2,500

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 RV = $2000 Unfavorable

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

Given planning budget revenue of 284000, actual revenue of 275000, and flexible budget revenue of 290000, there is a(n) ____ activity variance

favorable

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

fixed

Revenues and costs are adjusted as the level of activity changes on a _____ budget

flexible

What costs and revenues should be for the actual level of activity is shown on a(n) ___ budget.

flexible

a favorable activity variance may not include good performance because a favorable activity variance

for a variable cost will occur because the actual level of activity is less than the budgeted level.

the concept that focuses on important variances and ignores trivial ones is

management by exception

Variances are more accurate when using:

multiple cost drivers

A cost center's performance report does not include:

net operating income 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

Planning budgets are sometimes called _____ budgets

static

an unchanged planning budget is known as a(n) ____ planning budget

static

Fixed costs are often more controllable than variable costs

true

True or false: A spending variance is the difference between how much a cost should have been and the actual cost given the actual level of activity

true

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

unfavorable

Unfavorable variance vs favorable variance

unfavorable variance: actual revenue is less than budgeted revenue favorable revenue: actual revenue is more than budgeted revenue

Companies use the ___ ___ cycle to evaluate and improve performance

variance analysis

nonprofit organizations:

usually have significant funding sources other than 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

$1275 electrical cost = 40 per day * 24 days + .15 per client * 2100 clients = 1275

Common errors in preparing performance reports include:

-assuming all costs are variable. -assuming all costs are fixed.

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 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

performance reports for cost centers

do not include revenues or net income

Fancy Nails' budget revenue is $20 per manicure. The 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 Unfavorable(Flexible budget amount for revenue $20 per manicure x 2,500 manicures = $50,000. Revenue variance = $50,000 - $49,750 = $250 U)

Options to generate a favorable revenue and spending variance include:

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

Comparing the static planning budget to actual costs only makes sense when:

all costs are fixed the actual activity level is the same as the budgeted activity level

If management plans the budget based on 40 hours of operation and weather causes the business to be opened for only 32, what needs to be adjusted on the flexible budget?

hourly wages