Question 1

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.

Accepted Answer

This statement is true. Comparing actual costs to what the costs should have been at the actual level of activity is known as a cost variance analysis, which helps managers identify where they may have overspent or underspent on certain costs. This information can be used to make adjustments and improve cost control in the future.

Question 2

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

Accepted Answer

Variable costs can change based on various factors such as production volume, changes in market conditions or cost of raw materials. Therefore, comparing a static planning budget to actual costs may not provide an accurate picture of whether variable costs are under control. A better approach would be to use variance analysis to identify the reasons for any variances between the planned and actual costs.

Question 3

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

Accepted Answer

This statement is true. The activity variance for revenue is calculated by comparing the actual revenue with the revenue in the flexible budget. If the actual revenue exceeds the revenue in the flexible budget, it indicates that the company is performing better than planned, and the variance is favorable.

Question 4

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

Accepted Answer

An unfavorable activity variance for revenue means that the actual revenue generated was less than the revenue that was expected when the static planning budget was developed.

Question 5

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.

Accepted Answer

A static budget is prepared based on a predetermined level of activity, while a flexible budget is adjusted for changes in activity levels.

Question 6

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

Accepted Answer

A flexible budget adjusts for changes in activity levels and allows for a more accurate comparison between actual costs and what costs should have been at that level of activity.

Question 7

A revenue variance is the difference between what the total sales revenue should be, given the actual level of activity of the period, and the actual total sales revenue.

Accepted Answer

This is the correct definition of a revenue variance.

Question 8

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

Accepted Answer

Fixed costs should still be included in a flexible budget as it helps to determine the break-even point and the impact of changes in activity levels on the overall budget. However, they will not change in response to changes in activity levels.

Question 9

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

Accepted Answer

A revenue variance is actually unfavorable if the revenue in the flexible budget is less than the revenue in the static planning budget. This is because the flexible budget takes into account the actual level of activity, while the static planning budget is based on a predicted level of activity. If the actual level of activity is lower than predicted, revenue will decrease and the variance will be unfavorable.

Question 10

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

Accepted Answer

The answer of A favorable spending variance occurs when the...

Question 11

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.

Accepted Answer

The statement is true as the static planning budget is based on a specific level of activity, while the flexible budget adjusts to actual levels of activity. Comparing the differences between these two budgets can help identify what should have happened based on the actual activity levels.

Question 12

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.

Accepted Answer

A favorable revenue variance means that the actual revenue exceeds the expected revenue. This can be achieved by selling more units than expected or selling units at a higher price than expected. Therefore, if the activity measure is the number of units sold, the revenue variance is favorable if the average actual selling price is greater than expected.

Question 13

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

Accepted Answer

The answer of A revenue variance is favorable if the...

Question 14

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

Accepted Answer

Fixed costs are an important component of overall costs and cannot be easily controlled by a manager in the short term. Therefore, when evaluating how well a manager has controlled costs, fixed costs should not be ignored.

Question 15

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

Accepted Answer

In a flexible budget, total variable costs are based on the level of activity. As activity declines, total variable costs also decline in proportion to the decrease in activity. This is because variable costs are typically tied to the volume of goods or services produced, so as production decreases, variable costs decrease as well.

Question 16

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

Accepted Answer

The answer of The activity variance for revenue is favorable...

Question 17

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.

Accepted Answer

The answer of An activity variance is the difference between...

Question 18

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

Accepted Answer

Actual costs are the costs incurred, as recorded in the accounting system, and are not determined by plugging the actual level of activity into the cost formulas used in flexible budgets. Flexible budgets adjust budgeted costs based on the actual level of activity, but actual costs are based on real transactions and expenses that occurred.

Question 19

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

Accepted Answer

A spending variance is the difference between the actual amount spent and the amount that was budgeted for that level of activity, not between the static planning budget and the flexible budget.

Question 20

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

Accepted Answer

The answer of Fixed costs should usually be included in...

Quiz 9: Flexible Budgets and Performance Analysis