Chapter 09 Flexible Budgets and Performance Analysis
Chapter 09 Flexible Budgets and Performance Analysis Key
True / False Questions
1. Fixed costs should not be included in a performance report because fixed costs are not
controllable.
2. A flexible budget can be used to determine what costs should have been at a given level of
activity.
3. 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.
Chapter 09 Flexible Budgets and Performance Analysis
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.
5. 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.
6. The activity variance for revenue is favorable if the actual level of activity for the period
exceeds the planned level of activity.
Chapter 09 Flexible Budgets and Performance Analysis
7. The activity variance for revenue is unfavorable if the revenue in the flexible budget is less
than the revenue in the static planning budget.
8. The revenue and spending variances are the differences between the static planning budget
and the actual results for the period.
9. A revenue variance is favorable if the revenue in the static planning budget exceeds the
revenue in the flexible budget.
10. 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.
Chapter 09 Flexible Budgets and Performance Analysis
11. A favorable spending variance occurs when the actual cost exceeds the amount of that cost in
the flexible budget.
12. A flexible budget performance report contains both activity variances and revenue and
spending variances.
13. 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.
14. Flexible budgets cannot be used when there is more than one cost driver (i.e., measure of
activity).
Chapter 09 Flexible Budgets and Performance Analysis
15. Directly comparing static budget costs to actual costs only makes sense if the costs are fixed.
16. 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.
Multiple Choice Questions
17. The purpose of a flexible budget is to:
Chapter 09 Flexible Budgets and Performance Analysis
18. A static budget:
19. Which of the following comparisons best isolates the impact of a change in activity on
performance?
Chapter 09 Flexible Budgets and Performance Analysis
20. Which of the following would not appear on a flexible budget performance report as shown
in the text?
Chapter 09 Flexible Budgets and Performance Analysis
21. Salyers 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
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 53 guests?
Chapter 09 Flexible Budgets and Performance Analysis
22. Stock Manufacturing Corporation has prepared the following overhead budget for next
month.
The company’s variable overhead costs are driven by machine-hours.
What would be the total budgeted overhead cost for next month if the activity level is 6,600
machine-hours rather than 6,900 machine-hours?
Chapter 09 Flexible Budgets and Performance Analysis
Chapter 09 Flexible Budgets and Performance Analysis
9-17
23. Gummer Hospital bases its budgets on patient-visits. The hospital’s static budget for February
appears below:
The total overhead cost at an activity level of 10,800 patient-visits per month should be:
Chapter 09 Flexible Budgets and Performance Analysis
24. Scarfo Hotel bases its budgets on guest-days. The hotel’s static budget for December appears
below:
The total overhead cost at an activity level of 2,900 guest-days per month should be:
Chapter 09 Flexible Budgets and Performance Analysis
25. Wadhams Snow Removal’s cost formula for its vehicle operating cost is $1,900 per month
plus $430 per snow-day. For the month of December, the company planned for activity of 16
snow-days, but the actual level of activity was 21 snow-days. The actual vehicle operating cost
for the month was $11,470. The vehicle operating cost in the planning budget for December
would be closest to:
26. Petersheim Snow Removal’s cost formula for its vehicle operating cost is $1,750 per month
plus $484 per snow-day. For the month of November, the company planned for activity of 15
snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost
for the month was $8,360. The vehicle operating cost in the flexible budget for November would
be closest to:
Chapter 09 Flexible Budgets and Performance Analysis
27. Oscarson Midwifery’s cost formula for its wages and salaries is $2,720 per month plus $351
per birth. For the month of September, the company planned for activity of 121 births, but the
actual level of activity was 119 births. The actual wages and salaries for the month was $43,380.
The wages and salaries in the planning budget for September would be closest to:
28. Clovis Midwifery’s cost formula for its wages and salaries is $2,680 per month plus $245 per
birth. For the month of September, the company planned for activity of 118 births, but the actual
level of activity was 121 births. The actual wages and salaries for the month was $33,290. The
wages and salaries in the flexible budget for September would be closest to:
Chapter 09 Flexible Budgets and Performance Analysis
29. Gradert Framing’s cost formula for its supplies cost is $1,540 per month plus $12 per frame.
For the month of September, the company planned for activity of 668 frames, but the actual level
of activity was 666 frames. The actual supplies cost for the month was $9,980. The supplies cost
in the planning budget for September would be closest to:
30. Bargas Framing’s cost formula for its supplies cost is $2,240 per month plus $6 per frame.
For the month of May, the company planned for activity of 808 frames, but the actual level of
activity was 810 frames. The actual supplies cost for the month was $7,090. The supplies cost in
the flexible budget for May would be closest to:
Chapter 09 Flexible Budgets and Performance Analysis
31. Stuchlik Catering uses two measures of activity, jobs and meals, in the cost formulas in its
budgets and performance reports. The cost formula for catering supplies is $430 per month plus
$80 per job plus $14 per meal. A typical job involves serving a number of meals to guests at a
corporate function or at a host’s home. The company expected its activity in January to be 20
jobs and 190 meals, but the actual activity was 21 jobs and 194 meals. The actual cost for
catering supplies in January was $4,850. The catering supplies in the planning budget for January
would be closest to:
32. Whit Catering uses two measures of activity, jobs and meals, in the cost formulas in its
budgets and performance reports. The cost formula for catering supplies is $380 per month plus
$94 per job plus $11 per meal. A typical job involves serving a number of meals to guests at a
corporate function or at a host’s home. The company expected its activity in October to be 20
jobs and 216 meals, but the actual activity was 19 jobs and 221 meals. The actual cost for
catering supplies in October was $4,790. The catering supplies in the flexible budget for October
would be closest to:
33. Thomasson Air uses two measures of activity, flights and passengers, in the cost formulas in
its budgets and performance reports. The cost formula for plane operating costs is $36,160 per
month plus $2,038 per flight plus $1 per passenger. The company expected its activity in April to
be 73 flights and 223 passengers, but the actual activity was 72 flights and 228 passengers. The
actual cost for plane operating costs in April was $179,020. The activity variance for plane
operating costs in April would be closest to:
Chapter 09 Flexible Budgets and Performance Analysis
34. Kara Catering uses two measures of activity, jobs and meals, in the cost formulas in its
budgets and performance reports. The cost formula for catering supplies is $310 per month plus
$84 per job plus $17 per meal. A typical job involves serving a number of meals to guests at a
corporate function or at a host’s home. The company expected its activity in July to be 15 jobs
and 127 meals, but the actual activity was 14 jobs and 126 meals. The actual cost for catering
supplies in July was $3,620. The activity variance for catering supplies in July would be closest
to:
Chapter 09 Flexible Budgets and Performance Analysis
35. Orscheln Snow Removal’s cost formula for its vehicle operating cost is $2,800 per month
plus $381 per snow-day. For the month of February, the company planned for activity of 17
snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost
for the month was $7,920. The activity variance for vehicle operating cost in February would be
closest to:
Chapter 09 Flexible Budgets and Performance Analysis
36. Bolick Midwifery’s cost formula for its wages and salaries is $1,800 per month plus $152 per
birth. For the month of May, the company planned for activity of 119 births, but the actual level
of activity was 114 births. The actual wages and salaries for the month was $19,980. The activity
variance for wages and salaries in May would be closest to: