SB 9
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
If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $0.20 unit, and actual fixed costs total $500, which of the following are true?
$1,300 in total costs $4,700 net income
Common errors in preparing performance reports include:
-assuming all costs are fixed -assuming all costs are variable
A cost center's performance report does not include:
Net operating income
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 and spending variances help explain the difference.
Given planning budget revenue of $284,000 and flexible budget revenue of $290,000, there is a(n) __ activity variance.
Favorable
Which of the following statements is true?
Fixed costs are often more controllable than variable costs.
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
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
When preparing a flexible budget, the level of activity:
affects variable costs only
The variance analysis cycle:
begins with the preparation of performance reports
Comparing actual costs to static planning budget costs only makes sense if the costs are:
fixed
Comparing actual costs to what the costs should have been for the actual level of activity is done on a(n) __ budget.
flexible
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
Nonprofit organizations:
usually have significant funding sources other than sales may have revenue sources that are fixed
If activity increases by 20%:
variable costs should increase by 20%
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
The flexible budget __ report combines activity and revenue and spending variances.
performance
A cost center's performance report does not include:
revenue net operating income
An unchanged planning budget is known as a(n) __ planning budget.
static
Planning budgets are sometimes called _______ budgets.
static
If the actual cost is greater than what the cost should have been, the variance is labeled as
unfavorable
Companies use the _____ _____ cycle to evaluate and improve performance.
Variance analysis
favorable variance
actual revenue is more than budgeted revenue
Estimates of what revenues and costs should have been based on the actual level of activity are shown on the __ budget.
flexible
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
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
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 appear on the flexible budget?
$28,800 Revenue and $7,500 for supplies
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?
$437.50
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?
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
Revenue on the planning budget is expected to be $380,000 for 1,900 client visits. The revenue on the flexible budget is $410,000, showing that there were actually ______ client visits.
2,050
Unfavorable variance
Actual revenue is less than budgeted revenue.
Which of the following is a deficiency of using a static planning budget in performance reports?
The report compares actual revenues and costs at one level of activity with budgeted revenues and costs at a different level of activity
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
A static planning budget
compares actual revenues at one level of activity with budgeted revenues at a different level of activity compares actual costs at one level of activity with budgeted costs at a different level of activity
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
A revenue variance is the:
difference between what revenue should have been at the actual level of activity and the actual revenue
When actual revenue ______ what the revenue should have been, the variance is labeled favorable.
exceeds
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
If management plans the budget based on 40 hours of operation and weather causes the business to be opened for only 32, what needs to be adjusted on the flexible budget?
hourly wages
Options to generate a favorable revenue and spending variance include:
increase operating efficiency reduce the prices of inputs protecting the selling price
Unfavorable activity variances may not indicate bad performance because:
increased activity should result in higher variable costs
Because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is the __ effect.
leverage
The concept that focuses on important variances and ignores trivial ones is:
management by exception
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
A flexible budget performance report combines the:
activity variances with the revenue and spending variances
An estimate of what revenue and costs should have been, based on the actual level of activity is shown on a
flexible budget
