ACCT CH.9

A cost center's performance report does not include:

-net operating income -revenue

management by exception

-used in conjunction with variance analysis cycle -a management system that compares actual results to a budget so that significant deviations can be flagged as exceptions and investigated further -enables managers to focus on the most important variances while bypassing trivial discrepancies between the budget and actual results

Options to generate a favorable revenue and spending variance include: (check all that apply) A. protect the selling price B. increase the number of clients C. reduce the prices of inputs D. increase operating efficiency

A. protect the selling price C. reduce the prices of inputs D. increase operating efficiency

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

True or false? Fixed costs are often more controllable than variable costs.

True

variance analysis cycle

Used to evaluate and improve performance. 1. Prepare performance report 2. analyze variances 3. raise questions 4. identify root causes 5. take actions 6. conduct next period's operations

static planning budget

is suitable for planning but is inappropriate for evaluating how well costs are controlled

revenue variance

the difference between the actual total revenue and what the total revenue should have been

The flexible budget performance report consist of: (select all that apply) A. the planning budget, flexible budget, and actual results B. activity variances C. the manager's performance evaluations D. revenue and spending variances

A. the planning budget, flexible budget, and actual results B. activity variances D. revenue and spending variances

Nonprofit organizations: (check all that apply) A. never have variable revenue sources B. may have revenue sources that are fixed C. usually have significant funding sources other than sales D. never have costs

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

True or false? It is easier to significantly reduce variable costs than fixed costs.

False

flexible budget

an estimate of what revenues and costs should have been, given the actual level of activity for the period. -actual costs are compared to what the costs should have been for the actual level of activity during the period -adjusts to show what costs should be for the actual level of activity

leverage effect

because of fixed costs, net operating income does not change in proportion to changes in activity level

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

management by exception

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

more than 15%

variances are more accurate when using:

multiple cost drivers

planning budget

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

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 _____ variance.

spending

An unchanged planning budget is known as a:

static planning budget

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

activity variances

the differences between the actual level of activity and the level of activity in the planning budget from the beginning of the period