Chap 9 Flexible Budgets and Performance Analysis

Which of the following statements is true?

I.      Using a flexible budget, actual results can be compared to what costs should have been at the actual level of activity.

II.      Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.

III.      Actual costs are determined by plugging the actual level of activity for the period into the cost formulas used in flexible budgets.

IV.      Fixed costs should not be ignored when evaluating how well a manager has controlled costs.

both statements I and IV are true

Birkner Corporation's flexible budget performance report for last month shows that actual indirect materials cost, a variable cost, was $30,444 and that the spending variance for indirect materials cost was $8,142 favorable. During that month, the company worked 17,700 machine-hours. Budgeted activity for the month had been 18,200 machine-hours. The cost formula per machine-hour for indirect materials cost must have been closest to: 

$2.18

Duprey Clinic uses client-visits as its measure of activity. During January, the clinic budgeted for 2,200 client-visits, but its actual level of activity was 2,150 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for January:

Data used in budgeting:

	Fixed Element per Month	Variable element per client-visit
Revenue	$ 0	$ 58.40
Personnel expenses	$ 33,500	$ 18.00
Medical supplies	1,000	9.90
Occupancy expenses	9,300	2.20
Administrative expenses	5,300	0.40
Total expenses	$ 49,100	$ 30.50

Actual results for January:

Revenue	$ 127,950
Personnel expenses	$ 69,720
Medical supplies	$ 23,125
Occupancy expenses	$ 14,290
Administrative expenses	$ 5,930

The personnel expenses in the planning budget for January would be closest to:

$73,100

Which of the following statements is true?

I.  Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned.

II.  An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed.

III.  The activity variance for revenue is favorable if the revenue in the flexible budget exceeds the revenue in the static planning budget.

All of the statements are true

Which of the following statements is true?

I.  A flexible budget report should exclude variable costs because they can be expected to change with a change in the level of activity.

II.  A flexible budget performance report contains activity variances but not revenue or spending variances.

Neither statement is true

Tomlison Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During October, the company budgeted for 5,100 units, but its actual level of activity was 5,150 units. The company has provided the following data concerning the formulas to be used in its budgeting:

	Fixed Element per Month	Variable element per unit
Revenue	$ 0	$ 42.40
Direct labor	$ 0	$ 7.70
Direct materials	0	15.40
Manufacturing overhead	46,800	1.20
Selling and administrative expenses	21,000	0.40
Total expenses	$ 67,800	$ 24.70

The direct materials in the flexible budget for October would be closest to:

$79,310

Which of the following statements is true?

I.  The activity variance for revenue is favorable if the actual revenue for the period exceeds the revenue in the static planning budget.

II.  An activity variance is the difference between an actual revenue or cost and the revenue or cost in the flexible budget that is adjusted for the actual level of activity of the period.

neither statement is true

Which of the following statements is true?

I.  Flexible budgets can be used when there is more than one cost driver (i.e., measure of activity).

II.  A flexible budget performance report with more than one cost driver will always have more unfavorable revenue and spending variances than a performance report with only one cost driver.

III.  A flexible budget performance report with more than one cost driver can contain activity variances but not revenue or spending variances due to the increased complexity.

IV.  Performance reports with more than one cost driver typically have more accurate variances than those based on one cost driver.

both statements I and IV are true

Chimilio Clinic uses client-visits as its measure of activity. During June, the clinic budgeted for 3,400 client-visits, but its actual level of activity was 3,360 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for June:

Data used in budgeting:

	Fixed Element per Month	Variable element per client-visit
Revenue	$ 0	$ 33.70
Personnel expenses	$ 27,300	$ 10.70
Medical supplies	1,200	5.50
Occupancy expenses	9,000	1.50
Administrative expenses	4,100	0.30
Total expenses	$ 41,600	$ 18.00

Actual results for June:

Revenue	$ 112,062
Personnel expenses	$ 64,602
Medical supplies	$ 19,900
Occupancy expenses	$ 13,640
Administrative expenses	$ 5,068

The occupancy expenses in the flexible budget for June would be closest to:

$14,040

Which of the following statements is true?

I.  The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity.

II.  To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity.

III.  Fixed costs should usually be included in performance reports because fixed costs are generally controllable.

Statement I and II is correct

Canniff Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $57,260 per month plus $2,646 per flight plus $6 per passenger. The company expected its activity in February to be 73 flights and 282 passengers, but the actual activity was 72 flights and 283 passengers. The actual cost for plane operating costs in February was $248,510. The plane operating costs in the planning budget for February would be closest to:

$252,110

Tos Corporation’s flexible budget cost formula for indirect materials, a variable cost, is $0.60 per unit of output. If the company's performance report for last month shows an $800 unfavorable spending variance for indirect materials and if 9,000 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been:

$6,200

Which of the following statements is true?

I.  If activity is higher than expected, total fixed costs should be higher than expected. If activity is lower than expected, total fixed costs should be lower than expected.

II.  Comparing a static planning budget to actual costs is not a good way to assess whether variable costs are under control.

III.  In a flexible budget, when the activity declines, the total variable cost also declines.

both statements II and III are true

Sunn Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During November, the company budgeted for 6,100 units, but its actual level of activity was 6,050 units. The company has provided the following data concerning the formulas to be used in its budgeting:

	Fixed Element per Month	Variable element per unit
Revenue	$ 0	$ 33.70
Direct labor	$ 0	$ 5.90
Direct materials	0	10.90
Manufacturing overhead	48,400	1.20
Selling and administrative expenses	24,800	0.50
Total expenses	$ 73,200	$ 18.50

The manufacturing overhead in the flexible budget for November would be closest to:

 $55,660

Bluemel Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $43,670 per month plus $2,879 per flight plus $10 per passenger. The company expected its activity in December to be 85 flights and 281 passengers, but the actual activity was 90 flights and 278 passengers. The actual cost for plane operating costs in December was $314,740. The plane operating costs in the flexible budget for December would be closest to:

 $305,560

Lightsey Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the budgeted level of activity was 14,800 skeins and the actual level of activity was 15,100 skeins. The company's owner budgets for dye costs, a variable cost, at $0.51 per skein. The actual dye cost last month was $8,660. In the company's flexible budget performance report for last month, what would have been the spending variance for dye costs?

$959 U

Kawamura Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During December, the kennel budgeted for 2,300 tenant-days, but its actual level of activity was 2,320 tenant-days. The kennel has provided the following data concerning the formulas to be used in its budgeting:

	Fixed Element per Month	Variable element per tenant-day
Revenue	$ 0	$ 37.70
Wages and salaries	$ 3,000	$ 6.10
Food and supplies	800	13.40
Facility expenses	9,800	4.70
Administrative expenses	7,100	0.20
Total expenses	$ 20,700	$ 24.40

The administrative expenses in the planning budget for December would be closest to:

$7,560

Kawamura Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During December, the kennel budgeted for 2,300 tenant-days, but its actual level of activity was 2,320 tenant-days. The kennel has provided the following data concerning the formulas to be used in its budgeting:

	Fixed Element per Month	Variable element per tenant-day
Revenue	$ 0	$ 37.70
Wages and salaries	$ 3,000	$ 6.10
Food and supplies	800	13.40
Facility expenses	9,800	4.70
Administrative expenses	7,100	0.20
Total expenses	$ 20,700	$ 24.40

The wages and salaries in the planning budget for December would be closest to:

 $17,030

Canniff Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $56,560 per month plus $2,618 per flight plus $5 per passenger. The company expected its activity in February to be 63 flights and 254 passengers, but the actual activity was 62 flights and 255 passengers. The actual cost for plane operating costs in February was $218,820. The plane operating costs in the planning budget for February would be closest to:

 $222,764

Duprey Clinic uses client-visits as its measure of activity. During January, the clinic budgeted for 2,200 client-visits, but its actual level of activity was 2,150 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for January:

Data used in budgeting:

	Fixed Element per Month	Variable element per client-visit
Revenue	$ 0	$ 58.40
Personnel expenses	$ 33,500	$ 18.00
Medical supplies	1,000	9.90
Occupancy expenses	9,300	2.20
Administrative expenses	5,300	0.40
Total expenses	$ 49,100	$ 30.50

Actual results for January:

Revenue	$ 127,950
Personnel expenses	$ 69,720
Medical supplies	$ 23,125
Occupancy expenses	$ 14,290
Administrative expenses	$ 5,930

The administrative expenses in the planning budget for January would be closest to:

$6,180

Pittman Framing's cost formula for its supplies cost is $1,140 per month plus $14 per frame. For the month of November, the company planned for activity of 612 frames, but the actual level of activity was 604 frames. The actual supplies cost for the month was $9,940. The spending variance for supplies cost in November would be closest to:

$344 U

A favorable volume variance for sales revenue would indicate that:

more units were actually sold than the company had originally budgeted to sell.

An unfavorable flexible budget variance for variable expenses would indicate that:

actual variable expenses were higher than the flexible budget variable expenses.

Which of the following statements is true? 

1. Differences between the static planning budget and the flexible budget show what should  have happened because the actual level of activity differed from what had been planned.

2. An unfavorable activity variance for revenue indicates that activity was less than  expected when the static planning budget was developed.

3. The activity variance for revenue is favorable if the revenue in the flexible budget exceeds the revenue in the static planning budget. 

All of the statements are true

With ________, managers look at the size of the variances between actual results and budgeted amounts to determine which variances a manager should investigate.

management by exception

In a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

Which of the following statements is true? 

1. When the activity measure is the number of units sold, the revenue variance is favorable if the average actual selling price is greater than expected.

2. A favorable spending variance occurs when the actual cost is less than the amount of the cost in the static planning budget.

3. A revenue variance is favorable if the actual revenue is greater than the revenue in the static planning budget. 

Only statement I is true.

A performance report of a ________ will only include revenues generated by the center.

flexible budget variance

Which of the following may cause a favorable sales volume variance of the revenues?

The flexible budget sales in dollars are greater than the static budget sales in dollars.

Which of the following statements is true? 

1. The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity.

2. To help assess how well a manager has controlled costs, actual costs should be compared  to what the costs should have been for the actual level of activity.

3. Fixed costs should usually be included in performance reports because fixed costs are generally controllable. 

Only statement I is true

Which of the following causes the master budget variance between the amounts in the master budget and the flexible budget of a revenue center?

The number of units sold differs from planned sales levels

In a flexible budget, what will happen to fixed costs as the activity level increases?

Decreases total costs

In a flexible budget, what will happen to fixed costs as the activity level increases? 

The fixed cost per unit will decrease

The ______ is a budget based on multiple levels of projected sales or production.

Flexible Budget

Which of the following statements is true?

1. Flexible budgets can be used when there is more than one cost driver (i.e., measure of activity).

2. A flexible budget performance report with more than one cost driver will always have more unfavorable revenue and spending variances than a performance report with only one cost driver.

3. A flexible budget performance report with more than one cost driver can contain activity variances but not revenue or spending variances due to the increased complexity.

4. Performance reports with more than one cost driver typically have more accurate variances than those based on one cost driver.

Statement I and IV are true

Which of the following may cause a favorable sales volume variance of the revenues?

The flexible budget sales in dollars are greater than the static budget sales in dollar

With regard to flexible budgets, which of the following statements is true?

Managers use them to help plan for uncertainties.

The convenience store that is responsible for its own revenues, costs, and is owned by a national convenience store chain may be classified as a(n). 

Profit Center

When using a flexible budget, a decrease in activity within the relevant range:

Decreases total costs

The _____ reveals whether or not additional sales revenue can offset an increase in costs in the flexible budget performance report.

Sales volume variance

Which of the following statements is true?

1. The activity variance for revenue is favorable if the actual revenue for the period exceeds the revenue in the static planning budget.

2. An activity variance is the difference between an actual revenue or cost and the revenue or cost in the flexible budget that is adjusted for the actual level of activity of the period.

Neither statement is true

A budget that is based on the actual activity of a period is known as a:

Flexible budget