Smartbook 9

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

Companies use the ___ ___ cycle to evaluate and improve performance.

variance analysis

Which of the following statements is true?

Fixed costs are often more controllable than variable costs.

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

unfavorable

When preparing a flexible budget, the level of activity:

affects variable costs only

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

flexible

Revenues and costs are adjusted as the level of activity changes on a ___ budget.

flexible

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

planning

Options to generate a favorable revenue and spending variance include:

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

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

The flexible budget performance report consists of:

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

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

flexible budget

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 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

A cost center's performance report does not include:

revenue net operating income

A flexible budget shows:

what revenue should have been at the actual level of activity what fixed costs should have been at the actual level of activity what variable costs should have been at the actual level of activity

An unchanged planning budget is known as a(n) ___ planning budget.

static

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

performance

A cost center's performance report does not include:

net operating income

`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 variance analysis cycle:

begins with the preparation of performance reports

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.

Unfavorable activity variances may not indicate bad performance because:

increased activity should result in higher variable costs.

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

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

activity

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?

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

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

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 $7,500 for supplies

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?

$4,700 net income $1,300 in total costs

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 19,500

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

Performance reports for cost centers:

do not include revenues or net income

When actual revenue ______ what the revenue should have been, the variance is labeled favorable.

exceeds

A flexible budget performance report combines the:

activity variances with the revenue and spending variances

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

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 revenue variance is the:

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