Chapter 9: Flexible Budgets and Performance Analysis

Question 1

What is Management by exception

Answer 1

A management system in which actual results are compared to a budget. Significant deviations from the budget are flagged as exceptions and investigated further.

Question 2

What is a planning budget

Answer 2

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity.

Question 3

What is a flexible budget

Answer 3

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period.

Question 4

What is revenue variance

Answer 4

The difference between the actual revenue for the period and how much the revenue should have been, given the actual level of activity. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period