Question 1

A revenue variance is unfavorable if the actual revenue is less than the revenue in the static planning budget.

Accepted Answer

False

Question 2

An unfavorable activity variance indicates that activity was too high for the amount of sales.

Accepted Answer

An unfavorable activity variance indicates that activity was too low for the amount of sales, not too high.

Question 3

Comparing a static planning budget to actual costs is a good way to assess whether variable costs are under control.

Accepted Answer

Comparing a static planning budget to actual costs only provides information on whether fixed costs are under control. Variable costs can fluctuate and be difficult to predict, therefore additional analysis is needed to determine whether they are being managed effectively.

Question 4

An unfavorable activity variance for a variable cost occurs because the actual level of activity is higher than expected when the static planning budget was prepared.

Accepted Answer

An unfavorable activity variance means that the actual level of activity is higher than expected, resulting in higher variable costs than planned. This is because variable costs are directly related to the level of activity.

Question 5

Directly comparing a static planning budget to actual costs helps to distinguish between differences in costs that are due to changes in activity and differences that are due to how well costs were controlled.

Accepted Answer

The answer of Directly comparing a static planning budget to...

Question 6

A flexible budget should not be used when making comparisons to actual results such as actual expenses.

Accepted Answer

A flexible budget is designed to adjust to changes in activity levels, and therefore can be used for comparison to actual results. In fact, a flexible budget allows for a more accurate comparison because it takes into account the varying levels of activity.

Question 7

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

Accepted Answer

The answer of An activity variance is due to the...

Question 8

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

Accepted Answer

The revenue and spending variances represent the differences between the flexible budget and the actual results for the period.

Question 9

A flexible budget can be used to estimate what revenues and costs should have been, given the actual level of activity for the period.

Accepted Answer

A flexible budget adjusts for changes in activity levels, so it can be used to estimate what revenues and costs should have been based on the actual level of activity, making it a useful tool for performance evaluation and decision making.

Question 10

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

Accepted Answer

Fixed costs should still be included in a flexible budget because they are still relevant to overall budgeting and decision-making, even if they do not change with changes in activity level.

Question 11

A favorable spending variance occurs when the actual cost exceeds the amount of the cost in the static planning budget.

Accepted Answer

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

Question 12

A revenue variance is favorable if the actual revenue exceeds what the revenue should have been for the actual level of activity of the period.

Accepted Answer

A favorable revenue variance means that the actual revenue is higher than what was expected.

Question 13

A planning budget is prepared before the period begins and is valid for whatever the actual level of activity turns out to be.

Accepted Answer

The answer of A planning budget is prepared before the...

Question 14

A flexible budget cannot be used to estimate what costs should have been at a given level of activity.

Accepted Answer

A flexible budget adjusts for changes in level of activity, which allows it to estimate what costs should have been at that level.

Question 15

Controllability has little to do with whether a cost is fixed or variable.

Accepted Answer

Controllability refers to the ability of a manager to influence or change the cost. It does not depend on whether the cost is fixed or variable.

Question 16

A spending variance is the difference between the cost in the static planning budget and the actual amount of the cost for the period.

Accepted Answer

The answer of A spending variance is the difference between...

Question 17

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

Accepted Answer

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, not to the static planning budget.

Question 18

The activity variance for revenue is unfavorable if the actual level of activity for the period is less than the planned level of activity.

Accepted Answer

This statement is true. When actual revenue activity is less than planned activity, the actual revenue will be lower than expected, resulting in unfavorable activity variance.

Question 19

Fixed costs should be ignored when evaluating how well a manager has controlled costs.

Accepted Answer

Fixed costs are expected costs that do not change with production or sales levels, therefore they should not be ignored when evaluating a manager's ability to control costs. Instead, they should be compared to the budgeted fixed costs to determine if they were managed efficiently.

Question 20

An unfavorable spending variance may reflect waste as well as paying too much for inputs.

Accepted Answer

An unfavorable spending variance means that the actual spending was higher than the expected spending. This could be due to waste or inefficiencies in the production process, as well as paying too much for inputs.

Quiz 9: Flexible Budgets and Performance Analysis