Chapter 9 - Flexible Budgets and Performance Analysis

The variance analysis cycle ______.

• includes the investigation of all variances

• begins with the preparation of the budget

• is used to assign blame for poor performance

• begins with the preparation of performance reports

begins with the preparation of performance reports

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

• flexible

• planning

• strategic

planning

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.

• equal to

• lower than

• higher than

higher than

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 ______.

select all that apply

1. variable cost

2. fixed cost

3. revenue

(1) variable cost, (3) revenue

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?

• $4,400 and favorable

• $87,000 and unfavorable

• $11,600 and favorable

• $11,600 and unfavorable

$11,600 and favorable

1. calculate how much commission expense per sales = 16,000/4,000 = $4

2. times it by 2,900 = $11,600

3. favorable because the expense ended up being less than budgeted

Companies use the _____ _____ cycle to evaluate and improve performance. Fill in the blank

variance analysis

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.

• spending

• activity

• revenue

activity

Planning budgets are sometimes called ______ budgets.

• flexible

• static

static

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

• net income is lower than expected but all or most expense variances are favorable

• there are no revenue or expense variances

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

When preparing a flexible budget, the level of activity ______.

• affects both fixed and variable costs

• affects fixed costs only

• has no effect on costs

• affects variable costs only

affects variable costs only

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. (Enter either favorable or unfavorable.)

favorable

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.

• $200 F

• $125 U

• $125 F

• $200 U

$200 U,

Flexible budget amount for supplies: $0.75 × 2,500 manicures = $1,875.

Spending variance: $1,875 – $2,000 = $125 U.

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. Fill in the blank.

revenue

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

• equal to

• lower than

• higher than

higher than

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.

• lower than

• higher than

• equal to

higher than, Higher net income is generally due to higher levels of activity which causes some (variable) expenses to increase and leads to a F income and U expenses variances.

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. (Enter only one word per blank.)

spending

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 planned 

• more than what the cost should have been at the planned

• more than what the cost should have been at the actual 

• less than what the cost should have been at the actual 

less than what the cost should have been at the actual

A revenue variance is the ______.

• difference between total revenue in the planning budget and actual total revenue

• actual total revenue earned

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

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

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

A flexible budget performance report combines the ______.

• net income for two periods

• activity variances with the revenue and spending variances

• manager's performance with the employee's performance

activity variances with the revenue and spending variances

A spending variance is the difference between ______.

• the budgeted cost on the planning budget and the actual amount of the cost

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

• the budgeted cost on the planning budget and the budgeted cost on the flexible budget

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

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? Select all that apply.

1. The revenue variance is $2,000 Favorable.

2. The revenue variance is $2,000 Unfavorable.

3. The activity variance is $25,000 Unfavorable.

4. The activity variance is $25,000 Favorable.

(2) the revenue variance is $2,000 unfavorable, (4) the activity variance is $25,000 favorable

The flexible budget performance report consists of ______. Select all that apply.

1. the planning budget, flexible budget and actual results

2. activity variances

3. the manager's performance evaluations

4. revenue and spending variances

(1) the planning budget, flexible budget, and actual results

(2) activity variances

(3) revenue and spending variances

Nonprofit organizations ______. Select all that apply.

1. may have revenue sources that are fixed

2. never have costs

3. have significant funding sources besides sales

4. never have variable revenue sources

(1) may have revenue sources that are fixed, (3) have significant funding sources besides sales

A cost center's performance report does not include ______. Select all that apply.

1. net operating income

2. revenue

3. variances

4. costs

(1) net operating income, (2) revenue

To improve accuracy, variances on a flexible budget should generally be calculated using:

• multiple cost drivers

• a single cost driver

multiple cost drivers

Options to generate favorable revenue and spending variances include ______. (More than one answer may be correct.)

1. increasing the number of clients

2. reducing the prices of inputs

3. increasing operating efficiency

4. protecting the selling price

2. reducing the prices of inputs

3. increasing operating efficiency

4. protecting the selling price

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

• rarely have any fixed costs

• generally do not compute revenue and spending variances

usually receive significant funding from sources other than sales

Performance reports for cost centers ______.

• are not common in most organizations

• are significantly different than reports prepared for other departments

• do not include revenues or net income

do not include revenues or net income