Chapter 9

Question 1

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What is the net operating income in the company’s planning budget?

Answer 1

$49,000

Question 2

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What would be the utility expenses on the company’s flexible budget if actual unit sales for April were 6,000 units?

Answer 2

$14,000

The amount of utility expenses on the flexible budget for 6,000 units would be $14,000. $14,000 = $2,000 + ($2 × 6,000 units).

Question 3

Budget Solutions has determined from its flexible budget that selling costs for actual level activity for a period should have been $25,000. Actual selling costs incurred during the period were $28,000. What is the amount and direction of variance in selling costs?

Answer 3

$3,000 Unfavorable

The amount of variance in selling costs is $3,000 ($28,000 − $25,000). Because the actual costs are higher, the variance is unfavorable.

Question 4

Paradise Company’s planning budget for 10,000 units showed sales of $500,000. The flexible budget for 12,000 units showed sales of $600,000. What is the variance of $100,000 called if this variance was due only to an increase in unit sales?

Answer 4

Activity variance

Question 5

Which of the following scenarios demonstrates the leverage effect on net operating income due to the existence of fixed costs?

Answer 5

A 25% increase in sales resulting in a 30% increase in net operating income.

Question 6

The difference between the actual cost and budgeted cost at the actual level of activity is called a(n) ________.

Answer 6

spending variance

Question 7

The difference between the actual total revenue and budgeted total revenue at the actual level of activity is called a(n) ________.

Answer 7

revenue variance

Question 8

Which of the following is NOT a column on a flexible budget performance report?
Actual results
Planning budget
Net operating income Correct
Activity variances

Answer 8

Net operating income

Question 9

An unfavorable variance of $5,000 in cost of goods sold is determined by comparing the actual results (10,000 units) and the flexible budget (10,000 units). What type of variance is described?

Answer 9

Spending variance

Question 10

An unfavorable variance of $5,000 in sales is determined by comparing the flexible budget (9,000 units) and the planning budget (10,000 units). What type of variance is described?

Answer 10

Activity variance

Question 11

Estimates of what revenue and costs should have been based on the actual level of activity are shown on the ________ budget.

Answer 11

Flexible

Question 12

Fancy Nails has an estimated cost for supplies of $0.75 per manicure. June’s budget was based on 2400 manicures and a total cost for supplies of $1800. June’s actual activity was 2500 manicures. Total cost of supplies in June was $2000. Calculate the spending variance for June.

Answer 12

$125 U

Flexible budget amount for supplies: $0.75 x 2,500 manicures = $1,875.
Spending variance: 1875-2000 = $125 uNFORVABLE

Question 13

The flexible budget performance report consists of:

Answer 13

• activity variance
• the planning budget, flexible budget and actual results
• revenue and spending variances.

Question 14

nonprofit organizations

Answer 14

• may have revenue sources that are fixed

- usually have significant funding sources other than sales.

Question 15

Which of the following statements is true?

Answer 15

fixed costs are often more controllable than variable cost.

Question 16

A cost center’s perofrmance report does not include:

Answer 16

net operating income

Question 17

True or false: A discrepancy between the budgeted profit and the actual profit can be caused by a decrease in the actual level of activity.

Answer 17

true

Question 18

a favorable activity variance for a cost may not indicate good performance because a favorable activity variance:

Answer 18

for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity

Question 19

The diferrence between a revenue or cost item in the planning budget and the same item in the flexbile budget at the actual level of activity is a (n) ______ variance

Answer 19

activity

Question 20

Because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is the _______ effect.

Answer 20

leverage

Question 21

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:

Answer 21

$250 U

Flexible budget amount for revenue = $20 per manicure x 2,500 = 50k. revnue variance 50k - 49750 = 250 u $

Question 22

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) _____ variance.

Answer 22

revenue

Question 23

unfavorable variance

Answer 23

actual revenue is less than budgeted revenue

Question 24

Favorable variance

Answer 24

Actual revenue is more than budgeted revenue

Question 25

True or false: A spending variance is the diferrence between how much a cost should have been and the actual cost given the actual level of activity

Answer 25

true

Question 26

The spending variance is labeled as favorable when the:

Answer 26

actual cost is less than what the cost should have been at the actual level of activity

Question 27

true or false: activity variance help managers understand why actual net income differs from what it should have been at the actual level of activity.

Answer 27

false

Question 28

Given planning budget revenue of 284k, actual revenue of 275k and the flexible budget revenue of 290k there is a _________ activity variance

Answer 28

favorable

Question 29

unfavorable activity variance may not indicate bad performance because:

Answer 29

increased activity should result in higher variable costs.