Question 1

A revenue variance is favorable if the revenue in the static planning budget exceeds the revenue in the flexible budget.

Accepted Answer

A revenue variance is favorable if the revenue in the flexible budget exceeds the revenue in the static planning budget. This means that the actual revenue is higher than what was initially planned for in the static budget, which is a good thing for the company.

Question 2

The activity variance for revenue is unfavorable if the revenue in the flexible budget is less than the revenue in the static planning budget.

Accepted Answer

A variance is defined as unfavorable if the actual amount is less than the budgeted amount. In this case, if the revenue in the flexible budget is less than the revenue in the static planning budget, it means that the actual revenue is less than what was originally planned, which is unfavorable. Therefore, the activity variance for revenue is unfavorable.

Question 3

Directly comparing static budget costs to actual costs only makes sense if the costs are fixed.

Accepted Answer

True

Question 4

A static budget:
A)should be compared to actual costs to assess how well costs were controlled.
B)should be compared to a flexible budget to assess how well costs were controlled.
C)is valid for only one level of activity.
D)represents the best way to set spending targets for managers.

Accepted Answer

A static budget is prepared for only one level of activity and does not adjust for changes in activity levels. It is not as useful for assessing how well costs were controlled as a flexible budget, which adjusts for changes in activity levels. It also may not represent the best way to set spending targets for managers, as it may not reflect changes in the company's environment or business conditions.

Question 5

When a flexible budget is used in performance evaluation, actual costs are compared to what the costs should have been for the actual level of activity during the period rather than to the static planning budget.

Accepted Answer

In a flexible budget, the budgeted amounts are adjusted based on the actual level of activity during the period. Therefore, when comparing actual costs to the flexible budget, the comparison is more accurate and relevant than comparing actual costs to the static planning budget.

Question 6

While fixed costs should not be affected by a change in the level of activity within the relevant range, they may change for other reasons.

Accepted Answer

Fixed costs may remain the same within the relevant range of activity, but they may fluctuate due to factors such as changes in market conditions, technology advancements, and regulatory changes.

Question 7

If the actual level of activity is 4% more than planned, then the variable costs in the static budget should be increased by 4% before comparing them to actual costs.

Accepted Answer

Variable costs are directly related to the level of activity. Therefore, if the actual level of activity exceeds the planned level, the variable costs will also increase. To ensure an accurate comparison between actual and budgeted costs, the variable costs in the static budget should be adjusted to reflect the actual level of activity. In this case, the variable costs should be increased by 4% before comparing them to actual costs.

Question 8

The activity variance for revenue is favorable if the actual level of activity for the period exceeds the planned level of activity.

Accepted Answer

The activity variance for revenue is calculated as actual revenue - planned revenue. If the actual level of activity (usually measured in units produced or sold) exceeds the planned level of activity, the actual revenue will be higher than the planned revenue, resulting in a favorable activity variance.

Question 9

A flexible budget can be used to determine what costs should have been at a given level of activity.

Accepted Answer

A flexible budget adjusts for changes in activity levels, allowing for more accurate cost analysis and comparison to actual costs.

Question 10

A favorable spending variance occurs when the actual cost exceeds the amount of that cost in the flexible budget.

Accepted Answer

A favorable spending variance occurs when the actual cost is less than the amount of that cost in the flexible budget.

Question 11

Flexible budgets cannot be used when there is more than one cost driver (i.e., measure of activity).

Accepted Answer

Flexible budgets can be used when there is more than one cost driver. In fact, flexible budgets are designed to adjust to changes in multiple cost drivers. The idea is to create a budget that can account for variations in different types of activity levels, rather than relying on a fixed budget that may not accurately reflect actual costs.

Question 12

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

Accepted Answer

This is because variable costs are directly linked to the level of activity. As activity increases, the amount of variable costs incurred also increases. Similarly, if activity decreases, variable costs decrease accordingly.

Question 13

An activity variance is due solely to the difference between the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget.

Accepted Answer

This is correct, as an activity variance is specifically related to the difference in activity levels between the planning budget (which assumes a certain level of activity) and the actual activity level used in the flexible budget.

Question 14

A flexible budget performance report contains both activity variances and revenue and spending variances.

Accepted Answer

A flexible budget performance report includes activity variances based on the differences between the actual and flexed activity levels, as well as revenue and spending variances based on the differences between the actual and budgeted revenues and expenses.

Question 15

Which of the following would not appear on a flexible budget performance report as shown in the text?
A)Variable costs.
B)Mixed costs.
C)A flexible budget adjusted to the actual level of activity.
D)The previous year's actual costs.

Accepted Answer

The previous year's actual costs would not appear on a flexible budget performance report as it is not relevant to the current performance of the organization. The other options (A, B, and C) are typically included in a flexible budget performance report.

Question 16

Which of the following comparisons best isolates the impact of a change in activity on performance?
A)static planning budget and flexible budget
B)static planning budget and actual results
C)flexible budget and actual results
D)master budget and static planning budget

Accepted Answer

A planning budget is prepared before the period begins and is valid for only the planned level of activity.Flexible budgets take into account how changes in activity affect costs.A flexible budget is an estimate of what revenues and costs should have been,given the actual level of activity for the perio

Question 17

Fixed costs should not be included in a performance report because fixed costs are not controllable.

Accepted Answer

Fixed costs are included in performance reports as they are an important component of overall expenses and must be taken into consideration when analyzing profitability and efficiency. While fixed costs may not be directly controllable in the short term, they can be managed and influenced through decisions related to long-term investments, such as equipment purchases or facility expansions. Additionally, understanding fixed costs can help identify areas where cost reductions may be possible in the future.

Question 18

The purpose of a flexible budget is to:
A)remove items from performance reports that are not controllable by managers.
B)permit managers to reduce the number of unfavorable variances that are reported.
C)update the static planning budget to reflect the actual level of activity of the period.
D)reduce the amount of conflict between departments when the master budget is prepareD.When a flexible budget is used in performance evaluation, actual costs are compared to what the costs should have been for the actual level of activity during the period rather than to the static planning budget.

Accepted Answer

The purpose of a flexible budget is to update the static planning budget to reflect the actual level of activity of the period. This allows for a more accurate comparison between actual costs and what the costs should have been for the actual level of activity during the period. It also enables managers to better understand where variances are occurring and take corrective actions. Choice A is incorrect because a flexible budget does not remove items from performance reports that are not controllable by managers, it adjusts the budget for actual activity levels. Choice B is incorrect because a flexible budget does not permit managers to reduce the number of unfavorable variances, it provides a more accurate picture of variances. Choice D is incorrect because a flexible budget does not reduce conflict between departments when the master budget is prepared, it allows for better planning and decision making based on actual levels of activity.

Question 19

A spending variance is the difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost for the period.

Accepted Answer

This is the correct definition of a spending variance.

Question 20

The revenue and spending variances are the differences between the static planning budget and the actual results for the period.

Accepted Answer

The answer of The revenue and spending variances are the...

Quiz 11: Flexible Budgets and Performance Analysis