Chapter 9 LearnSmart

the flexible budget performance report consists of (5):

1) revenue & spending variances 2) activity variances 3) planning budget 4) flexible budget 5) actual results

when the activity level increases by 15%, net operating income in the flexible budget will ordinarily increase by ________ 15%.

more than

a cost center's performance report does not include _____.

net operating income

the variance analysis cycle begins with the preparation of ______ ______.

performance reports

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 & spending

the percentage change in net income in the flexible budget is greater than the percentage change in activity due to _____ costs.

fixed

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?

$108,000 $120,000 / 5,000 units = $24 per unit $24 per unit x 4,500 units = $108,000

the system that compares actual results to a budget so that significant deviations can be flagged & investigated further is called ______ ______ ______.

management by exception

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

planning

variances are more accurate when using _________.

multiple cost drivers

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 & the same item in the flexible budget at the actual level of activity is a ______ variance.

activity

a revenue variance is the __________.

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

options to generate a favorable revenue & spending variance include _______ (3)

increase operating efficiency reduce the prices of inputs protecting the selling price

the concept that focuses on important variances & ignores trivial ones is _______ _____ _______.

management by exception

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 $40 per day x 24 days + ($.15 per client x 2,100 clients) = $1,275

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 F $16,000 / 4,000 = $4 per unit $4 x 2,900 units = 11,600 since the flexible budget expense < planing budget expense, the variance is favorable

the spending variance is labeled as favorable when the _________.

actual cost is less than what the cost should have been at the actual level of activity

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.

false

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

false revenue & spending variances help explain the difference

an estimate of what revenue & costs should have been, based on the actual level of activity is shown on a _____ budget.

flexible

revenues and costs are adjusted as the level of activity changes on a _______ budget.

flexible

what costs & revenues should have been for the actual level of activity is shown on a ______ budget.

flexible

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

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 flexible budget amount for revenue: $20 per manicure x 2,500 manicures = $50,000 revenue variance: $50,000 - $49,750 = $250 U

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? a) the revenue variance is $2,000 F b) the activity variance is $25,000 F c) the revenue variance is $2,000 U d) the activity variance is $25,000 U

b) the activity variance is $25,000 F (the activity variance is the difference between the planning budget & the flexible budget) c) the revenue variance is $2,000 U (the revenue variance is the difference between the flexible budget & actual results)

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

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

unfavorable activity variances may not indicate bad performance because _______.

increased activity should result in higher variable costs

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