Managerial Accounting, 16e (Garrison)
Chapter 9: Flexible Budgets and Performance Analysis
1) If activity is higher than expected, total fixed costs should be higher than expected. If activity
is lower than expected, total fixed costs should be lower than expected.
2) Comparing a static planning budget to actual costs is not a good way to assess whether
variable costs are under control.
3) In a flexible budget, when the activity declines, the total variable cost also declines.
4) 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.
5) 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.
6) Fixed costs should usually be included in performance reports because fixed costs are
generally controllable.
7) Using a flexible budget, actual results can be compared to what costs should have been at the
actual level of activity.
8) Fixed costs should not be included in a flexible budget because they do not change when the
level of activity changes.
9) Actual costs are determined by plugging the actual level of activity for the period into the cost
formulas used in flexible budgets.
10) Fixed costs should not be ignored when evaluating how well a manager has controlled costs.
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.
12) An unfavorable activity variance for revenue indicates that activity was less than expected
when the static planning budget was developed.
13) The activity variance for revenue is favorable if the revenue in the flexible budget exceeds
the revenue in the static planning budget.
14) The activity variance for revenue is favorable if the actual revenue for the period exceeds the
revenue in the static planning budget.
15) 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.
16) 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.
17) 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.
18) A revenue variance is unfavorable if the revenue in the static planning budget is less than the
revenue in the flexible budget.
19) 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.
20) A favorable spending variance occurs when the actual cost is less than the amount of the cost
in the static planning budget.
21) A revenue variance is favorable if the actual revenue is greater than the revenue in the static
planning budget.
22) A flexible budget report should exclude variable costs because they can be expected to
change with a change in the level of activity.
23) A flexible budget performance report contains activity variances but not revenue or spending
variances.
24) Flexible budgets can be used when there is more than one cost driver (i.e., measure of
activity).
25) If the actual level of activity is 4% less than planned, then the fixed costs in the static budget
should be decreased by 4% before comparing them to actual costs.
26) If the actual level of activity differs from what was planned, it would be misleading to
compare actual costs to the static, unchanged planning budget.
27) If the actual level of activity is 4% more than planned, then the costs in the static budget
should be increased by 4% before comparing them to actual costs.
28) In a flexible budget, what will happen to fixed costs as the activity level increases?
A) The fixed cost per unit will decrease.
B) The fixed cost per unit will remain unchanged.
C) The fixed cost per unit will increase.
D) Fixed costs are not included in a flexible budget.
29) When using a flexible budget, a decrease in activity within the relevant range:
A) decreases variable cost per unit.
B) increases variable cost per unit.
C) decreases total costs.
D) increases total costs.
30) A budget that is based on the actual activity of a period is known as a:
A) continuous budget.
B) flexible budget.
C) static budget.
D) master budget.
31) Which of the following may appear on a flexible budget performance report?
A) An unfavorable activity variance.
B) A favorable revenue variance.
C) An unfavorable spending variance.
D) All of the above may appear on a flexible budget performance report.
32) Sathre Corporation is an oil well service company that measures its output by the number of
wells serviced. The company has provided the following fixed and variable cost estimates that it
uses for budgeting purposes.
Fixed Element per
Month
Variable
Element per
Well Serviced
Revenue
$
4,500
Employee salaries and wages
$
56,400
$
900
Servicing materials
$
700
Other expenses
$
35,400
–
When the company prepared its planning budget at the beginning of December, it assumed that
34 wells would have been serviced. However, 32 wells were actually serviced during December.
The “Employee salaries and wages” in the flexible budget for December would have been closest
to:
A) $87,000
B) $84,600
C) $85,200
D) $89,888
Wells serviced (q)
Employee salaries and wages ($56,400 + $900q)
85,200
–
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33) Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old
mansion. The Inn’s guests appreciate its gourmet breakfasts and individually decorated rooms.
The Inn’s overhead budget for the most recent month appears below:
Activity level
90
guests
Variable overhead costs:
Supplies
$
234
Laundry
315
Fixed overhead costs:
Utilities
220
Salaries and wages
4,290
Depreciation
2,680
Total overhead cost
$
7,739
–
The Inn’s variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the activity level is 99 guests?
A) $7,793.90
B) $61,541.00
C) $8,512.90
D) $7,739.00
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34) Buckson Framing’s cost formula for its supplies cost is $1,350 per month plus $18 per frame.
For the month of June, the company planned for activity of 716 frames, but the actual level of
activity was 713 frames. The actual supplies cost for the month was $14,820. The supplies cost
in the flexible budget for June would be closest to:
A) $14,820
B) $14,184
C) $14,178
D) $14,238
35) Cosden Corporation is an oil well service company that measures its output by the number of
wells serviced. The company has provided the following fixed and variable cost estimates that it
uses for budgeting purposes.
Fixed Element per
Month
Variable
Element per
Well Serviced
Revenue
$
4,700
Employee salaries and wages
$
41,300
$
1,000
Servicing materials
$
600
Other expenses
$
40,200
–
When the company prepared its planning budget at the beginning of May, it assumed that 29
wells would have been serviced. However, 31 wells were actually serviced during May.
The total expenses in the flexible budget for May would have been closest to:
A) $133,100
B) $124,513
C) $127,900
D) $131,100
Budget
Wells serviced (q)
Expenses:
Employee salaries and wages ($41,300 + $1,000q)
72,300
Servicing materials ($600q)
18,600
Other expenses ($40,200)
40,200
Total expenses
–
36) Herlocker Corporation is a shipping container refurbishment company that measures its
output by the number of containers refurbished. The company has provided the following fixed
and variable cost estimates that it uses for budgeting purposes.
Fixed Element
per Month
Variable Element
per Container
Refurbished
Revenue
$
4,600
Employee salaries and wages
$
42,700
$
1,100
Refurbishing materials
$
600
Other expenses
$
29,100
–
When the company prepared its planning budget at the beginning of February, it assumed that 26
containers would have been refurbished.
The amount shown for revenue in the planning budget for February would have been closest to:
A) $136,300
B) $119,600
C) $133,400
D) $122,200
Containers refurbished (q)
Revenue ($4,600q)
–
37) Bugos Corporation is a service company that measures its output by the number of customers
served. The company has provided the following fixed and variable cost estimates that it uses for
budgeting purposes.
Fixed Element per
Month
Variable
Element per
Customer Served
Revenue
$
4,200
Employee salaries and wages
$
58,800
$
900
Travel expenses
$
700
Other expenses
$
33,300
–
When the company prepared its planning budget at the beginning of March, it assumed that 40
customers would have been served.
The amount shown for “Employee salaries and wages” in the planning budget for March would
have been closest to:
A) $91,200
B) $94,800
C) $92,600
D) $102,889
Customers served (q)
Employee salaries and wages ($58,800 + $900q)
94,800
–
38) Dreckman Corporation is a service company that measures its output by the number of
customers served. The company has provided the following fixed and variable cost estimates that
it uses for budgeting purposes and the actual results of operations for August.
Fixed Element per
Month
Variable Element
per Customer
Served
Actual Total
for August
Revenue
$
4,000
$
125,500
Employee salaries and wages
$
46,600
$
900
$
74,700
Travel expenses
$
600
$
18,800
Other expenses
$
33,100
$
33,500
–
When the company prepared its planning budget at the beginning of August, it assumed that 36
customers would have been served. However, 31 customers were actually served during August.
The “Other expenses” in the flexible budget for August would have been closest to:
A) $33,500
B) $38,903
C) $28,847
D) $33,100
Customers served (q)
Other expenses ($33,100 fixed)
–
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39) Hamiter Framing’s cost formula for its supplies cost is $1,640 per month plus $9 per frame.
For the month of August, the company planned for activity of 572 frames, but the actual level of
activity was 573 frames. The actual supplies cost for the month was $7,080. The supplies cost in
the planning budget for August would be closest to:
A) $7,080
B) $7,068
C) $6,788
D) $6,797
40) Kirkeby Corporation is a shipping container refurbishment company that measures its output
by the number of containers refurbished. The company has provided the following fixed and
variable cost estimates that it uses for budgeting purposes.
Fixed Element
per Month
Variable Element
per Container
Refurbished
Revenue
$
4,700
Employee salaries and wages
$
44,200
$
1,300
Refurbishing materials
$
700
Other expenses
$
30,200
–
When the company prepared its planning budget at the beginning of May, it assumed that 32
containers would have been refurbished. However, 34 containers were actually refurbished
during May.
The “Refurbishing materials” in the flexible budget for May would have been closest to:
A) $22,682
B) $24,100
C) $22,400
D) $23,800
Containers refurbished (q)
Refurbishing materials ($700q)
–