Chapter 9

An estimate of what revenue and costs should have been, based on the actual level of activity is shown on a

flexible budget

A cost center's performance report does not include

revenue, net operating income

If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is

$108,000

Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units. If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?

$11,600 and favorable

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

flexible

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.

$1,275

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. The actual cost of supplies in June was $2,000. Calculate the spending variance for June.

$125 U

Fancy Nails' budgeted revenue is $20 per manicure. The planning 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 U

The planning budget, based on 1,000 units, shows revenue of $24,000 and $6,250 for supplies. A total of 1,200 units were actually produced and sold. The flexible budget will show

$28,800 revenue, $7,500 for supplies

Fancy Nails cost formula for miscellaneous expenses is $30 per operating day plus $0.25 per client served. Fancy Nails' miscellaneous expense budget in a month when the business is going to be open for 25 days and they expect to serve a total of 2,400 clients is $

1350

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

Unfavorable variance

Actual revenue is less than budgeted revenue.

Favorable variance

Actual revenue is more than budgeted revenue.

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?

The activity variance is $25,000 Favorable., The revenue variance is $2,000 Unfavorable.

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

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

activity variances with the revenue and spending variances

The variance analysis cycle

begins with the preparation of performance reports

A revenue variance is the

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

Performance reports for cost centers

do not include revenues or net income

Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n) _______ activity variance

favorable

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

fixed costs, mixed costs

A favorable activity variance may not indicate good performance because a favorable activity variance

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

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 ____ budgeted activity

higher than

When a change in sales mix causes the average selling price to be _______ the amount expected, the revenue variance is labeled favorable.

higher than

Using multiple cost drivers on a flexible budget report will generally

increase accuracy

Unfavorable activity variances may not indicate bad performance because

increased activity should result in higher variable costs

Options to generate favorable revenue and spending variances include

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

The spending variance is labeled as favorable when the actual cost is _______ level of activity

less than what the cost should have been at the actual

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

management by exception

The system that compares actual results to a budget so that significant deviations can be flagged and investigated further is called

management by exception

Nonprofit organizations

may have revenue sources that are fixed, have significant funding sources besides sales

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

more than

Variances are more accurate when using

multiple cost drivers

When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that

net income is higher than expected but all or most expense variances are unfavorable

A budget that is prepared before the beginning of the period for a specific level of activity is called a _____ budget

planning

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

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

sales of $44,000,net operating income of $19,500

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 ______ budgets.

static

The flexible budget performance report consists of

the planning budget, flexible budget and actual results activity variances revenue and spending variances

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

unfavorable

The prominent difference between performance reports in nonprofit and for-profit organizations is that nonprofit organizations

usually receive significant funding from sources other than sales

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

variable cost, revenue

Companies use the ________cycle to evaluate and improve performance

variance analysis

A spending variance is the difference between

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

When preparing a flexible budget, the level of activity

affects variable costs only