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Chapter 9
planned level of activity. It is static because it is
9-3 Actual results can differ from the budget
for many reasons. Very broadly speaking, the
From a manager’s perspective, a variance that is
due to a change in activity is very different from
9-5 An activity variance is the difference
between a revenue or cost item in the flexible
involve costs. A “favorable” activity variance for
9-6 A revenue variance is the difference
between the actual revenue for the period and
how much the revenue should have been, given
9-7 A spending variance is the difference
between the actual amount of the cost and how
9-8 In a flexible budget performance report,
the actual results are not directly compared to
the static planning budget. The flexible budget is
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
2 Managerial Accounting, 15th Edition
variances) from the differences that are due to
9-9 The only difference between a flexible
budget based on a single cost driver and one
based on two cost drivers is the cost formulas.
should not change with a change in the level of
9-11 When the static planning budget is
adjusted proportionately for a change in activity
and then directly compared to actual results, it
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
Solutions Manual, Chapter 9 3
1. The amount of revenue in the flexible budget for May is:
Revenue:
Variable element per customer served (a) .......
$5,000
Actual activity (b) ..........................................
35
Amount in flexible budget (a) × (b) ................
$175,000
2. The amount of employee salaries and wages in the flexible budget for
May is:
Employee salaries and wages:
Variable element per customer served (a) .......
$1,100
Actual activity (b) ..........................................
35
Variable portion of the amount (a) × (b) .........
$38,500
Variable portion of the amount .......................
$38,500
Fixed element per month ...............................
50,000
Amount in flexible budget ..............................
$88,500
3. The amount of travel expenses in the flexible budget for May is:
Travel expenses:
Variable element per customer served (a) .......
$600
Actual activity (b) ..........................................
35
Amount in flexible budget (a) × (b) ................
$21,000
4. The amount of Other Expenses included in the flexible budget for May
would be the fixed element per month of $36,000.
5. The net income reported in the flexible budget can be derived by
combining the answers to questions 1-4 as follows:
Revenue ..............................................
$175,000
Employee salaries and wages ................
$88,500
Travel expenses ...................................
21,000
Other expenses ....................................
36,000
145,500
Net operating income ...........................
$ 29,500
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
4 Managerial Accounting, 15th Edition
10. The amount of revenue in the planning budget for May is:
Revenue:
Variable element per customer served (a) .......
$5,000
Planned level of activity (b) ............................
30
Amount in planning budget (a) × (b) ..............
$150,000
11. The amount of employee salaries and wages in the planning budget for
May is:
Employee salaries and wages:
Variable element per customer served (a) .......
$1,100
Actual activity (b) ..........................................
30
Variable portion of the amount (a) × (b) .........
$33,000
Variable portion of the amount .......................
$33,000
Fixed element per month ...............................
50,000
Amount in planning budget ............................
$83,000
© The McGraw-Hill Companies, Inc., 2015. All rights reserved.
Solutions Manual, Chapter 9 5
12. The amount of travel expenses in the planning budget for May is:
Travel expenses:
Variable element per customer served (a) .......
$600
Actual activity (b) ..........................................
30
Amount in planning budget (a) × (b) ..............
$18,000
13. The amount of Other Expenses included in the planning budget for
May would be the fixed element per month of $36,000.
15. The activity variances for the expenses for May are as follows:
Flexible
Budget
Activity
Variance
Planning
Budget
Employee salaries and wages
$88,500
$5,500 U
$83,000
Travel expenses
$21,000
$3,000 U
$18,000
Other expenses
$36,000
$0
$36,000
Exercise 9-4 (20 minutes)
1.
Vulcan Flyovers
Flexible Budget Performance Report
For the Month Ended July 31
Actual
Results
Revenue
and
Spending
Variances
Flexible
Budget
Activity
Variances
Planning
Budget
Flights (q) ......................................
48
48
50
Revenue ($320.00q) .......................
$13,650
$1,710
U
$15,360
$640
U
$16,000
Expenses:
Wages and salaries ($4,000 +
$82.00q) ...................................
8,430
494
U
7,936
164
F
8,100
Fuel ($23.00q) .............................
1,260
156
U
1,104
46
F
1,150
Airport fees ($650 + $38.00q) ......
2,350
124
F
2,474
76
F
2,550
Aircraft depreciation ($7.00q) .......
336
0
336
14
F
350
Office expenses ($190 + $2.00q) ..
460
174
U
286
4
F
290
Total expense .................................
12,836
700
U
12,136
304
F
12,440
Net operating income .....................
$ 814
$2,410
U
$ 3,224
$336
U
$ 3,560
2. The overall $336 unfavorable activity variance is due to activity falling below what had been planned
for the month. The $1,710 unfavorable revenue variance is very large relative to the company’s net
