CH 9 MANAGERIAL ACCOUNTING
flexible budget
revenues and costs are adjusted as the level of activity changes on a
revenue and spending variances
subtract flexible budget from actual results
Activity Variance
subtract planning budget from flexible budget
multiple cost drivers
variances are most accurate when using:
more than 15%. Net operating income will increase by more than 15% because fixed costs do not increase with changes in activity
when the activity level increases by 15%, net operating income in the flexible budget will ordinarily increase by:
fixed costs are often more controllable than variable costs
which of the following statements is true?
1. All costs are fixed 2. the actual activity level is the same as the budgeted activity level
comparing the static planning budget to actual results only makes sense when:
True
A discrepancy between the budgeted profit and the actual profit can be caused by a decrease in the actual level of activity
1. increase operating efficiency 2. protecting the selling price 3. reduce the prices of inputs
options to generate a favorable revenue and spending variance include
ANS= $437.50. {350 x $1.25= $437.50. Fixed costs remain the same
A company's cost of supplies for when 5,000 units are sold is $7,500 of fixed costs plus $1.25 variable cost per unit. What is the increase in the total cost of supplies if 350 more units are sold than expected?
Revenue and Net operating Income
A cost center's performance report does not include:
False
Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity
unfavorable variance
Actual revenue is less than budgeted revenue
ANS= $125 U. Flexible budget amount for supplies: $0.75 x 2,500 manicures= $1,875. Spending variance: $1,875 - $2,000= $125 U.
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. Total cost of supplies in June was $2,000. Calculate the spending variance for June.
spending variance
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
Planning Budget
a budget that is prepared at the beginning of the period for a specific level of activity is a
for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity
a favorable activity variance may not indicate good performance because a favorable activity variance:
favorable variance
actual revenue is more than budgeted revenue
flexible budget
an estimate of what revenue and costs should have been, based on the actual level of activity is shown on a
static planning budget
an unchanged planning budget is known as a(n)
leverage effect
because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is the ____ effect
1. assuming all costs are variable 2. assuming all costs are fixed
common errors in preparing performance reports include:
Variance Analysis Cycle
companies uses the _______ cycle to evaluate and improve performance
favorable activity variance
given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n)
variable costs should increase by 20%
if activity increases by 20%
unfavorable
if the actual cost is greater than what the cost should have been, the variance is labeled as
ANS= $108,000. $120,000/5,000= $24 per unit x 4,500= $108,000
if the planned budget revenue for 5,000 units is $120,000, what is the flexible budget revenue if the actual activity is 4,500 units?
1. usually have significant funding sources other than sales 2. may have revenue sources that are fixed
nonprofit organizations:
Activity Variance
one option to generate a favorable ____ variance for net operating income is to increase the number of clients
static budgets
planning budgets are sometimes called _______ budgets
management by exception
the concept that focuses on important variances and ignores trivial ones is
Activity Variance
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)
Revenue Variance
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)
1. $7,500 for supplies. $6,250/1,000= $6.25 per unit x 1,200= $7,500. 2.$28,800 Revenue. $24,000/1,000= $24 per unit x 1,200= $28,800
the planning budget calls for total variable costs for supplies to be $6,250 based on 1,000 units with planned revenue at $24,000. A total of 1,200 units were actually produced and sold. What amounts should appease on the flexible budget?
revenue and spending variances
to understand why actual net operating income differs from what is should have been at he actual level of activity, the ____ variances should be analyzed
1. Sales of $44,000. Sales= $20 per manicure ($40,000/2,000) x 2,200 2. Net Operating Income of $19,500. $44,000 - $22,000-$2,500
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:
ANS= $1,275. Electrical cost= $40 per day x 24 days + 0.15 per client x 2,100 clients= $1,275
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. The revenue variance is $2,000 Unfavorable. The revenue variance is the difference between the flexible budget and actual results. 2. The activity variance is $25,000 Favorable. The activity variance is the difference between the planning budget and the flexible budget.
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?
