A306 Chapter 9

Spending Variance

the difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity

If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is Blank______. Multiple choice question. $120,000 $118,000 $180,000 $108,000

$108,000

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 $

15,000 , U

Flexible Budget

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period.

Prepare Performance Report

Analyze Variances -> Raise Questions -> Identify Root Causes -> Take Actions -> Conduct Next Period's Operations -> Begin again

When actual revenue Blank______ what the revenue should have been, the variance is labeled favorable. Multiple choice question. exceeds is less than is equal to

exceeds

Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity. (T/F)

False (rev and spending)

Which of the following statements is true? Multiple choice question. A cost is fixed if it is proportional to activity. It is easier to significantly reduce variable costs than to reduce fixed costs. Fixed costs are often more controllable than variable costs.

Fixed costs are often more controllable than variable costs.

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

Planning

Revenue and spending variances

Subtract flexible budget from actual results

Activity variance

Subtract planning budget from flexible budget

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? Multiple select question. 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. (225,000 - 200,000) The revenue variance is $2,000 Unfavorable. (223,000 - 225,000)

Fixed costs are often more controllable than variable costs. (T/F)

True

One option to generate a favorable Blank______ variance for net operating income is to increase the number of clients. Multiple choice question. revenue and spending activity

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) Blank______ variance. Multiple choice question. revenue activity spending

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

A flexible budget performance report combines the Blank______. Multiple choice question. net income for two periods manager's performance with the employee's performance activity variances with the revenue and spending variances

activity variances with the revenue and spending variances

The spending variance is labeled as favorable when the Blank______. Multiple choice question. actual cost is less than what the cost should have been at the actual level of activity actual cost is more than what the cost should have been at the actual level of activity amount spent is less than what was spent last period actual cost is less than what the cost should have been at the planned level of activity

actual cost is less than what the cost should have been at the actual level of activity (cost paid less than what you thought)

When preparing a flexible budget, the level of activity Blank______. Multiple choice question. affects both fixed and variable costs affects variable costs only has no effect on costs affects fixed costs only

affects variable costs only

The variance analysis cycle Blank______.

begins with the preparation of performance reports

A spending variance is the Blank______. Multiple choice question. difference between what a cost should have been at the actual level of activity and the actual amount of the cost projected amount to be spent on a cost actual amount spent on a cost difference between the budgeted cost at the budgeted level of activity and the actual amount of the cost

difference between what a cost should have been at the actual level of activity and the actual amount of the cost

A budget that takes into account how costs are affected by changes in level of activity is a(n) __________ budget.

flexible

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

flexible

favorable activity variance may not indicate good performance because a favorable activity variance Blank______. Multiple choice question. may occur simply because the purchasing department acquired low quality supplies at a discount for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity for a fixed cost will occur simply because the actual level of activity is less than the budgeted level of activity

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

Unfavorable activity variances may not indicate bad performance because Blank______. Multiple choice question. increased activity should result in higher variable costs increased activity should result in higher fixed costs costs should not change as activity changes

increased activity should result in higher variable costs

Activity Variances

the difference between the actual level of activity and the level of activity in the planning budget from the beginning of the period (Flexible - Planning)

Planning Budget

is prepared before the period begins and is valid for only the planned level of activity

Revenue variances can be caused by Blank______. Multiple select question. poor accounting controls changes in the mix of products sold changes in selling price changes in the level of activity

poor accounting controls changes in the mix of products sold changes in selling price

Possible causes of a spending variance include Blank______. Multiple select question. using too many inputs for the actual level of activity producing more or less product than expected paying less than expected for inputs changes in technology

using too many inputs for the actual level of activity paying less than expected for inputs changes in technology

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 Blank______. Multiple select question. fixed cost variable cost revenue

variable cost revenue

Companies use the ____________ cycle to evaluate and improve performance.

variance analysis

A revenue variance is the Blank______. Multiple choice question. difference between what a cost should have been at the actual level of activity and the actual amount of the cost difference between total revenue in the planning budget and actual total revenue actual total revenue earned difference between what revenue should have been at the actual level of activity and the actual revenue

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

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 Blank______. Multiple select question. rent expense of $2,750 wages of $20,000 net operating income of $19,500 sales of $44,000

net operating income of $19,500 sales of $44,000 (variable)

Options to generate favorable revenue and spending variances include Blank______. Multiple select question. protecting the selling price reducing the prices of inputs increasing operating efficiency increasing the number of clients

protecting the selling price reducing the prices of inputs increasing operating efficiency

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

To understand why actual net operating income differs from what it should have been at the actual level of activity, the Blank______ variances should be analyzed. Multiple choice question. activity revenue and spending both revenue and spending and activity

revenue and spending

To understand why actual net operating income differs from what it should have been at the actual level of activity, the Blank______ variances should be analyzed. Multiple choice question. revenue and spending activity both revenue and spending and activity

revenue and 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. Multiple choice question. flexible static

static

Revenue Variance

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