Flexible Budget Quiz

Which of the following statements is true?

I. 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.

II. Comparing a static planning budget to actual costs is not a good way to assess whether variable costs are under control.

III. In a flexible budget, when the activity declines, the total variable cost also declines.

• Only statement I one is true.

• Both statements II and III are true.

• All of the statements are true.

• None of the statements are true.

Which of the following statements is true?

I. 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.

II. 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.

III. Fixed costs should usually be included in performance reports because fixed costs are generally controllable.

• Only statement I one is true.

• Both statements II and III are true.

• All of the statements are true.

• None of the statements are true.

Which of the following statements is true?

I. Using a flexible budget, actual results can be compared to what costs should have been at the actual level of activity.

II. Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes.

III. Actual costs are determined by plugging the actual level of activity for the period into the cost formulas used in flexible budgets.

IV. Fixed costs should not be ignored when evaluating how well a manager has controlled costs.

• Both statements I one and IV are true.

• Both statements II and III are true.

• All of the statements are true.

• None of the statements are true.

Which of the following statements is true?

I. 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.

II. An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed.

III. The activity variance for revenue is favorable if the revenue in the flexible budget exceeds the revenue in the static planning budget.

• Only statement I one is true.

• Both statements II and III are true.

• All of the statements are true.

• None of the statements are true.

Which of the following statements is true?

I. The activity variance for revenue is favorable if the actual revenue for the period exceeds the revenue in the static planning budget.

II. 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.

• Only statement I one is true.

• Only statement II is true.

• Both statements are true.

• Neither statement is true.

Which of the following statements is true?

I. 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.

II. 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.

III. A revenue variance is unfavorable if the revenue in the static planning budget is less than the revenue in the flexible budget.

• Only statement I one is true.

• Only statement II is true.

• Only statement III is true.

• None of the statements are true.

Which of the following statements is true?

I. A flexible budget report should exclude variable costs because they can be expected to change with a change in the level of activity.

II. A flexible budget performance report contains activity variances but not revenue or spending variances.

• Only statement I one is true.

• Only statement II is true.

• Both statements are true.

• Neither statement is true.

Which of the following statements is true?

I. Flexible budgets can be used when there is more than one cost driver (i.e., measure of activity).

II. A flexible budget performance report with more than one cost driver will always have more unfavorable revenue and spending variances than a performance report with only one cost driver.

III. A flexible budget performance report with more than one cost driver can contain activity variances but not revenue or spending variances due to the increased complexity.

IV. Performance reports with more than one cost driver typically have more accurate variances than those based on one cost driver.

• Both statements I one and IV are true.

• Both statements II and III are true.

• All of the statements are true.

• None of the statements are true.

In a flexible budget, what will happen to fixed costs as the activity level increases?

• The fixed cost per unit will decrease.

• The fixed cost per unit will remain unchanged.

• The fixed cost per unit will increase.

• Fixed costs are not included in a flexible budget.

When using a flexible budget, a decrease in activity within the relevant range:

• decreases variable cost per unit.

• increases variable cost per unit.

• decreases total costs.

• increases total costs.