Question 1

The purpose of a flexible budget is to:

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 rather than to the static planning budget.

Question 2

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

Accepted Answer

A flexible budget performance report compares actual results to a flexible budget, which is based on the actual level of activity. Activity variances relate to the difference between the actual level of activity and budgeted level of activity, while revenue and spending variances relate to the difference between actual and budgeted revenues and expenses. Therefore, a flexible budget performance report includes both types of variances.

Question 3

Which of the following would not appear on a flexible budget performance report as shown in the text?

Accepted Answer

Flexible budget performance reports show only current year information.

Question 4

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

This statement is true. When using a flexible budget for performance evaluation, actual costs are compared to what the costs should have been for the actual level of activity, rather than the static planning budget. This takes into account the actual level of activity and adjusts the budget accordingly for a more accurate comparison.

Question 5

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

Accepted Answer

A flexible budget takes into account the actual level of activity and adjusts the budgeted costs accordingly. This allows for a comparison between actual costs and what costs should have been at the given level of activity.

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 are expected to stay constant within the relevant range, but they may still change due to factors like lease renewals, changes in contract terms, or inflation.

Question 7

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 8

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 proportional to the level of activity, so if the actual level of activity is 4% more than planned, then the variable costs would also increase by 4%. Therefore, to compare actual costs with static budgeted costs accurately, the variable costs in the static budget should be increased by 4%.

Question 9

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

Accepted Answer

This is because if the actual level of activity is higher than planned, it means that more revenue was generated than expected, resulting in a favorable variance.

Question 10

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

An activity variance is a type of flexible budget variance that measures the difference between the actual level of activity and the budgeted level of activity. This variance exists because the budget was prepared based on a certain level of activity that may not have been achieved in reality. Therefore, the answer is true, and activity variances do indeed result from differences between the planned activity and the actual level of activity.

Question 11

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...

Question 12

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 accurate definition of a spending variance.

Question 13

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 statement is true according to the concept of variable costs being directly proportional to the level of activity. If activity increases, variable costs will also increase, and if activity decreases, variable costs will also decrease.

Question 14

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.

Question 15

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

The activity variance for revenue is calculated as the difference between the revenue in the flexible budget and the revenue in the static planning budget. If the revenue in the flexible budget is less than the revenue in the static planning budget, it means that the business did not generate as much revenue as it had planned for. This is considered unfavorable as it indicates a shortfall in revenue. Therefore, the statement is true.

Question 16

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

Accepted Answer

Fixed costs should be included in a performance report because although they are not easily controllable in the short-term, they still have an impact on a company's profitability and should be monitored and managed in the long-term.

Question 17

A static budget:

Accepted Answer

A planning budget is prepared before the period begins and is valid for only the planned level of activity.

Question 18

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

Accepted Answer

Static budgets are based on fixed costs, which do not change with the level of activity, making direct comparison meaningful only for fixed costs.

Question 19

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 with more than one cost driver. In fact, using multiple cost drivers can increase the accuracy of the budget.

Question 20

Which of the following comparisons best isolates the impact of a change in activity on performance?

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

Quiz 8: Flexible Budgets and Performance Analysis

The purpose of a flexible budget is to:

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

Which of the following would not appear on a flexible budget performance report as shown in the text?

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.

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

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.

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

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.

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

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.

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

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.

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.

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

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

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

A static budget:

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

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

Which of the following comparisons best isolates the impact of a change in activity on performance?