AGC Chapter 9 Study Topics

What is a flexible budget?

an estimate of what revenues and costs Should Have Been, given the actual level of activity for the period

When actual activity is lower than planned activity, actual costs are expected to be ______.

higher

What does activity variances show

how revenue or cost should have changed in response to the difference between actual vs planning.

Are fixed costs affected by activity level?

no

The variance analysis cycle begins with the ____ __ ____ reports

preparation of performance This is done for every department and itll highlight the variances and answer management questions

To understand why actual net operating income differs from what it should have been at the actual level of activity, the ______ variances should be analyzed.

revenue and spending

True or false: A static budget is being compared to actual activity. The variance is F for net income but U for most expenses. This suggests that actual activity was lower than budgeted.

F because actual activity will be higher than budgeted

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

F because rev and spending variances do that

Activity variance includes

Flexible and planning

Why do managers use a flexible budget

control costs and improve performance evaluation

Because of ____ _____, net operating income does not change in proportion to changes in the level of activity

fixed costs This is a leverage effect

What is a planning budget

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

When a flexible budget is compared to a planning budget, what is the result

the activity variances

Revenue variance includes

the actual and flexible

Unfavorable activity variances may not indicate bad performance because increased activity should result in higher ______ costs

variable

A revenue variance is the difference between

what revenue/sales should have been at the actual level of activity and the actual revenue/sales

How to prepare a companys flexible budget performance report. Headlines only left-right

1. Actual revenue 2. Revenue spending variance 3. Flexible budget revenue 4. Activity variance 5. Planning budget

When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that (A)net income is higher than expected but all or most expense variances are unfavorable (B)net income is lower than expected but all or most expense variances are favorable (C)there are no revenue or expense variances

A

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

fixed costs

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

variable costs only Includes revenue and expenses

Options to generate favorable revenue and spending variances include_______. 3 ideas

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

The flexible budget _________ report combines activity and revenue and spending variances.

Performance

T or F Fixed costs are often more controllable than variable costs.

T

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

Activity

what is spendings variance and what does it include

Difference between actual cost and how much a cost should have been Actual and spending