Question 1

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

Accepted Answer

That is correct, the revenue and spending variances are calculated by subtracting the actual results from the flexible budget, and the resulting differences are known as variances.

Question 2

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

A planning budget is based on expected levels of activity and is not adjusted for actual activity levels; it is prepared before the period begins to guide financial planning.

Question 3

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 revenue variance is considered favorable when the actual revenue is greater than the expected or budgeted revenue for a given level of activity. This indicates that the company is performing better than expected, which is a positive outcome. On the other hand, an unfavorable revenue variance occurs when actual revenue is lower than the expected revenue, which may indicate that the company needs to take corrective actions to improve performance.

Question 4

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 5

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 at a different level of activity than originally budgeted. This allows for better analysis and planning based on actual activity, rather than just comparing actual results to a static budget.

Question 6

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 may help to assess if overall costs are under control, but it is not a good way to assess whether variable costs are under control as static budgets are typically based on assumptions and do not account for fluctuations in variable costs. To assess variable costs, it is better to use flexible budgets that adjust for changes in activity levels and account for differences in costs over time.

Question 7

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

An unfavorable activity variance for revenue occurs when the actual level of activity is less than the planned level of activity. This means that revenue falls short of the expected amount, resulting in a negative variance. If the actual level of activity exceeds the planned level of activity, then the activity variance for revenue is favorable (a positive variance).

Question 8

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

Accepted Answer

A flexible budget is specifically designed to estimate costs at different levels of activity, so it can be used to estimate what costs should have been at a given level of activity.

Question 9

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

Accepted Answer

Controllability refers to the extent to which a cost or factor is under the control of a manager, regardless of whether it is fixed or variable. The controllable costs can be influenced by the decisions and actions of the management, while uncontrollable costs are outside of the manager's control. Thus, the nature of a cost being fixed or variable does not determine its controllability.

Question 10

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

Accepted Answer

A flexible budget can be used for making comparisons to actual results. In fact, that is one of the key benefits of a flexible budget - it allows for more accurate and meaningful comparisons to actual results.

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, so the statement is false.

Question 12

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 may not change with changes in activity levels, but they are still an important component of a flexible budget as they represent an ongoing expense that must be accounted for in budgeting and financial planning. Including fixed costs in a flexible budget allows for a more accurate reflection of overall expenses and can help with making informed business decisions.

Question 13

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

Accepted Answer

An unfavorable spending variance indicates a higher actual cost of inputs compared to the budgeted cost. This could be due to paying too much for inputs or due to wastage during the production process. Therefore, the statement is true.

Question 14

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

A static planning budget does not account for changes in activity levels, so it cannot distinguish between cost differences due to activity changes and cost control effectiveness. A flexible budget is needed for such analysis.

Question 15

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

Accepted Answer

Fixed costs are not directly affected by the actions of a manager, as they do not change regardless of the level of activity. Therefore, they should not be ignored when evaluating how well a manager has controlled costs. Instead, managers should focus on controlling variable costs and improving efficiency in the company's operations.

Question 16

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 17

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 high for the budgeted amount, not the amount of sales.

Question 18

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

Accepted Answer

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

Question 19

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 for a variable cost occurs when the actual level of activity is higher than expected, resulting in higher costs than what was budgeted for in the static planning budget.

Question 20

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 the static planning budget.

Quiz 2: Flexible Budgets and Performance Analysis