Questions and Answers
Companies use the (1) (2) cycle to evaluate and improve performance.
variance analysis
An unchanged planning budget is known as a(n) (1) planning budget.
static
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 lower than budgeted.
False
A flexible budget shows ______. (Select all that apply)
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Given planning budget revenue of $284,000, actual revenue of $275,000, and flexible budget revenue of $290,000, there is a(n) (1) activity variance.
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The variance analysis cycle ______.
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A budget that is prepared at the beginning of the period for a specific level of activity is called a ______ budget.
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When comparing the static planning budget to actual activity, a problem that arises when actual activity is higher than budgeted activity is that ______.
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Estimates of what revenues and costs should have been based on the actual level of activity are shown on the (1) budget.
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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?
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Planning budgets are sometimes called ______ budgets.
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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 lower than budgeted.
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Revenues and costs are adjusted as the level of activity changes on a(n) (1) budget.
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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.
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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. Total cost of supplies in June was $2,000. Calculate the spending variance for June.
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When preparing a flexible budget, the level of activity ______.
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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 ______ is a(n) (1) variance.
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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) (1) variance.
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Fancy Nails' budgeted revenue is $20 per manicure. The planning budget for June was based on 2,400 manicures. During June, the actual revenue was $49,750 for 2,500 manicures. The revenue variance for June is ______.
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When actual revenue ______ what the revenue should have been, the variance is labeled favorable.
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A revenue variance is the ______.
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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) (1) variance.
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The spending variance is labeled as favorable when the ______.
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Revenue on the planning budget is expected to be $380,000 for 1,900 client visits. The revenue on the flexible budget is $410,000, showing that there were actually ______ client visits.
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A spending variance is the ______.
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If the actual cost is greater than what the cost should have been, the variance is labeled as (1).
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The flexible budget performance report consists of ______. (Select all that apply)
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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)
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Options to generate a favorable revenue and spending variance include ______. (Select all that apply)
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Nonprofit organizations ______. (Select all that apply)
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A flexible budget performance report combines the ______.
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A performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and actual revenue was $230,000. The activity variance is $ (1) (2).
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One option to generate a favorable ______ variance for net operating income is to increase the number of clients.
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The prominent difference between performance reports in nonprofit and for-profit organizations is that nonprofit organizations ______.
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The flexible budget (1) report combines activity and revenue and spending variances.
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A cost center's performance report does not include ______. (Select all that apply)
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Variances are more accurate when using ______.
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A cost center's performance report does not include ______. (Select all that apply)
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Using multiple cost drivers on a flexible budget report will generally ______.
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Performance reports for cost centers ______.
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Study Notes
Budgeting Concepts
- Companies utilize the variance analysis cycle to assess and enhance performance.
- An unchanged planning budget is referred to as a static budget.
- Static budgets do not adjust for actual activity levels, potentially leading to misleading variance results.
- A flexible budget adapts to reflect what costs and revenues should be based on actual activity levels.
Variance Analysis
- When analyzing performance, the variance analysis cycle starts with preparing performance reports.
- The activity variance reflects the difference between planning and flexible budget figures at actual activity levels.
- A revenue variance indicates the discrepancy between expected and actual revenue based on current activity levels.
Budget Performance
- A favorable activity variance indicates that actual revenue exceeded expectations.
- A static budget compared to higher actual activity reveals higher net income, but often results in unfavorable expense variances.
- Expenses must be properly categorized (fixed, variable) to assess variations effectively; flexible budgets adjust variable costs based on activity.
Revenue and Spending Variances
- Positive (favorable) variance occurs when actual revenues exceed budgeted amounts, while negative (unfavorable) variance occurs when they fall short.
- The variance for commission expenses can be calculated using budgeted rates and actual sales volumes.
- The spending variance illustrates discrepancies between budgeted costs and actual costs incurred based on actual activity levels.
Nonprofit vs For-Profit Organizations
- Nonprofits may have a unique structured revenue model, often including fixed funding sources and significant external funding.
- Performance reports for nonprofits differ from for-profits, especially regarding their reliance on funding outside of direct sales.
Performance Reporting and Accuracy
- Performance reports integrate activity variances, revenue variances, and spending variances to provide comprehensive insights into operational efficiency.
- Implementing multiple cost drivers increases the accuracy of variances and performance assessments.
- A cost center's report typically excludes revenue and net operating income, focusing solely on costs and efficiency metrics.
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Description
This quiz covers essential concepts in budgeting, including static and flexible budgets, as well as the variance analysis cycle used by companies to assess performance. It delves into understanding activity and revenue variances to enhance budget performance and decision-making. Test your knowledge on these critical financial management aspects!
