WorksheetsCost and Variance Analysis Worksheet
Total questions: 45
Worksheet time: 23mins
In a performance report for a Cost Center, what line item is missing compared to a profit center report?
Net Operating Income.
Wages.
Total Expenses.
Supplies.
A logistics center budgeted for an average of $0.25 per mile for fuel. They planned for 10,000 miles. Actual miles driven were 12,000, and the total Activity Variance for fuel was $500 U. What was the average actual cost per mile for fuel?
$0.250
$0.246
$0.208
$0.255
A firm has fixed costs of $5,000. Revenue is $200 per client plus $50 per hour. Variable cost is $50 per client plus $10 per hour. Planned activity was 50 clients and 300 hours. Actual activity was 60 clients and 250 hours. Actual fixed cost was $5,100. Last period's total revenue was $25,000. What is the Activity Variance for Net Operating Income (NOI)?
$500 U
$0
$1,000 U
$1,500 F
Planning Budget Net Operating Income (NOI) was $50,000. Actual NOI was $55,000. The Activity Variance for NOI was $8,000 F. The Revenue Variance was $1,000 U. The Fixed Cost Spending Variance was $500 U. Planned fixed costs were $15,000. What is the Spending Variance for the Variable Costs?
$3,500 F
$1,500 U
$2,500 F
$2,000 F
A company uses labor hours as the cost driver. The Planning Budget (PB) at 4,000 hours shows a total cost of $26,000. The variable rate is $3.50 per hour. Actual activity was 4,200 hours, and the actual total cost was $27,500. Revenue for the period was $80,000. What is the Total Budget Variance for the cost (Actual vs. Planning Budget)?
$1,500 U
$700 U
$800 U
$2,200 U
A department's fixed cost for rent was budgeted at $15,000. Due to an unexpected renewal fee, the actual rent cost was $15,450. The actual activity level was 10% higher than planned. What is the Spending Variance for rent?
$1,500 F
$1,500 U
$450 U
$450 F
Flexi-Serve Co. uses a cost formula of $5 per client visit for administrative supplies. The company planned for 4,000 visits but actually completed 4,800 visits. The Planning Budgeted cost for Administrative Supplies was $20,000. What is the Activity Variance for Administrative Supplies?
$4,000 F
$20,000 U
$4,000 U
$24,000 U
FlexiCorp planned to sell 2,000 units at a price of $15.00/unit, with a variable cost of $7.00/unit and budgeted fixed costs of $10,000. Actual sales reached 2,500 units. The company achieved an actual revenue of $38,000, incurred an actual variable cost of $18,500, and spent $10,500 on fixed costs. The company had a target profit margin of 20%. What is the Total Spending Variance for Net Operating Income (NOI)?
$1,000 U
$500 U
$500 F
$1,500 U
If a manager is evaluated based on a static budget, and activity increases, what is the likely result for variable costs?
Large unfavorable variances that may be unfair.
Zero variances.
Accurate measurement of efficiency.
Large favorable variances.
In a Flexible Budget Performance Report, where do Revenue and Spending Variances appear?
Only on the balance sheet.
Between Actual Results and the Flexible Budget.
As a separate report entirely.
Between the Flexible Budget and the Planning Budget.
In a Flexible Budget Performance Report, where do Activity Variances appear?
After Net Operating Income.
Between Actual Results and the Flexible Budget.
Between the Flexible Budget and the Planning Budget.
In the footnotes.
A manager is preparing a performance report. She subtracts the Planning Budget amount from the Flexible Budget amount. The result of this calculation is labeled as:
The Spending Variance.
The Activity Variance.
The Revenue Variance.
The Net Income Variance.
A Revenue Variance is the difference between:
Cash collected and Accounts Receivable.
Actual Revenue and Flexible Budget Revenue.
The Planning Budget Revenue and Actual Revenue.
The Flexible Budget Revenue and Planning Budget Revenue.
A fast-food chain sees a massive Favorable Activity Variance for revenue but a sharp drop in customer satisfaction scores. What is the likely situation?
They cut staff to save money.
They raised prices and lost customers.
They improved food quality.
Traffic surged, overwhelming the staff’s capacity.
Why might an "Unfavorable" Activity Variance for a variable cost actually be a good sign?
It means fixed costs were eliminated.
It means the company saved money.
It means prices for raw materials dropped.
It indicates increased business activity and customer volume.
What is the fundamental flaw in asking "Why is the actual cost higher than the planning budget?"
It ignores the revenue side of the business.
It assumes that costs should never rise.
It assumes the planning budget was accurate.
It fails to separate the portion of the cost increase due to higher activity from the portion due to spending efficiency.
Consulting Firm X bases its budget on 200perhour.Theybilled1,000hoursasplanned.However,theygrantedavolumediscounttoalargeclient,resultinginanaveragerealizedrateof 190 per hour. How will this appear on the performance report?
Unfavorable Revenue Variance.
Unfavorable Activity Variance.
Favorable Spending Variance.
Zero Variance.
Why might a Nonprofit Organization (like a university) have a revenue formula that includes both fixed and variable elements?
Because all their costs are fixed.
Because they cannot track costs accurately.
Because they receive funding from flat sources (grants/appropriations) and activity-based sources (tuition/fees).
Because nonprofits are not allowed to make a profit.
Why should management NOT view an "Unfavorable" Activity Variance for Net Operating Income as a performance failure by the production manager?
Because activity variances are theoretical and not real numbers.
Because it indicates that costs were controlled better than expected.
Because it simply indicates that actual activity was lower than planned, which might be a sales function issue.
Because it reflects a change in fixed costs that the manager cannot control.
A Spending Variance is the difference between:
Actual Cost and Flexible Budget Cost.
Actual Cost and Planning Budget Cost.
Flexible Budget Cost and Planning Budget Cost.
Variable Cost and Fixed Cost.
The activity base for a flexible budget should usually be expressed in units of activity rather than in dollars.
True
False
_____ are budgets for a single activity level.
a. Flexible budgets
b. Master budgets
d. Both b and c are correct
c. Static budgets
When using a flexible budget, what will occur to fixed costs as the activity level increases within the relevant range?
a. fixed costs are not considered in flexible budgeting
b. fixed costs per unit will decrease
c. fixed costs per unit will remain unchanged
d. fixed costs per unit will increase
Which one of the following is a step that management must perform when developing the flexible budget?
a. Identify the activity index and the relevant range of activity
b. Estimate the number of units to be produced
c. Determine the expected costs outside of the relevant range
d. All of the options are steps management must perform when developing the flexible budget
In-Step Manufacturing uses a flexible budget. It has the following budgeted manufacturing costs for 25,000 pairs of shoes: Fixed Manufacturing Costs, $12,000 and Variable Manufacturing Costs, $16.00 per pair of shoes. If In-Step Manufacturing makes 20,000 pairs of shoes this month, what are the total budgeted manufacturing cost for the month?
a. $412,000
b. $320,000
c. $400,000
d. $332,000
A fleet manager sees a "Favorable" Spending Variance for vehicle maintenance. He discovers that the mechanics skipped several routine oil changes that were scheduled for the month to save time and money. What is the strategic implication of this variance?
Short-term savings may lead to long-term costs.
The activity level was lower than expected.
The budget formula was incorrect.
The department has become more efficient permanently.
A firm has a fixed maintenance cost of $5,000. Its revenue formula is $20 per unit plus a $2,000 fixed fee. Planned units were 1,000. Actual units were 1,200. Actual Total Revenue was $27,500. The variable cost is $5.00 per unit. Actual total cost was $10,000. The fixed fee increased by 10% in the new year. What is the Flexible Budget Revenue?
$24,000
$25,000
$26,000
$27,000
A company has a Net Operating Income (NOI) of $15,000 in its Planning Budget. The Actual NOI was $18,000. The Total Cost Spending Variance was $500 F. The Revenue Variance was $1,500 F. What was the NOI Activity Variance?
$4,000 F
$3,000 F
$1,000 U
$2,000 F
A cost center has a cost formula of $10,000 fixed plus $5 per direct labor hour (DLH). Planning was based on 5,000 DLH. The center actually used 5,500 DLH, and its total actual cost was $38,000. What is the Total Budget Variance (Actual vs. Planning)?
$500 U
$5,500 U
$3,000 U
$3,000 F
GigaCorp budgeted to sell 1,000 software licenses at a price of $500 each. They actually sold 1,150 licenses. What is the Activity Variance for revenue?
$62,500 F
$75,000 U
$50,000 F
$75,000 F
A factory planned to produce 2,000 units and budgeted $40,000 in variable overhead. It actually produced 1,900 units. Fixed costs for the period were $10,000. What is the Activity Variance for the total overhead cost?
$1,000 F
$2,000 U
$1,900 F
$2,000 F
Eco-Bags Co. budgeted for 3,000 sales at $10 per bag. They sold 3,200 bags. The total Activity Variance for revenue was $2,000 F. What was the total Actual Revenue?
$32,000
$31,000
$30,000
$34,000
Given a total cost spending variance of $100 and a revenue variance of $750, what is the Variable Cost Spending Variance? The company's budget included $1,000 fixed revenue, $25 variable revenue per unit, and $10 variable cost per unit. Actual activity was 120 units (planned was 100 units), resulting in an actual Net Operating Income (NOI) of $2,650. What is the Spending Variance for the total variable cost
$50 U
$100 F
$100 U
$50 F
What is a "Cost Center"?
A department responsible for costs but not revenues.
A department that handles investments.
A department that generates revenue.
A department that outsources its labor.
TechSupport Co. budgeted for 500 client tickets. They actually handled 600 tickets. The "Wages and Salaries" line item (a mixed cost) shows a $2,000 unfavorable variance on the static budget report. The manager believes this is unfair because the staff had to work overtime to handle the extra volume. How does a flexible budget analyze this situation differently?
It ignores the extra 100 tickets.
It increases the budgeted wage allowance for the extra tickets.
It compares the results to the previous month.
It treats all wages as fixed costs.
A manager claims that the "Unfavorable" spending variance for labor is due to a union-negotiated wage increase that occurred mid-year, which was not in the original planning budget. If this is true, the variance is primarily driven by:
Price (Rate).
Efficiency (Hours).
Volume (Units).
Mix (Products).
A company uses a formula for Maintenance Cost: $5,000 fixed + $2 per machine hour. Actual activity was 1,000 hours. The actual cost incurred was $7,500. What is the Spending Variance?
$2,500 Unfavorable.
$500 Unfavorable.
Zero
$500 Favorable
A favorable Spending Variance means:
Actual spending was less than the planning budget amount.
Actual activity was lower than planned.
Revenue was higher than expenses.
Actual spending was less than the flexible budget amount.
How does the performance report for a nonprofit organization typically differ from a for-profit business?
It uses a static budget only.
It does not have variable costs.
Revenue may consist of funding sources other than sales.
It does not calculate variances.
In the context of the variance analysis cycle, what should happen after significant variances are investigated?
The budget should be retroactively changed to match actuals.
The variances should be ignored if they are favorable.
Root causes should be identified and actions taken.
The accounting department should be fired.
In a cost formula $Y = a + bq$, what does the term "$q$" represent?
The variable cost per unit.
The quantity of the cost driver (activity level).
The spending variance.
The total revenue.
Why might an "Unfavorable" Activity Variance for a variable cost actually be a good sign?
It means prices for raw materials dropped.
It means fixed costs were eliminated.
It means the company saved money.
It indicates increased business activity and customer volume.
BlueSky Airlines prepared a static planning budget based on 1,000 flights for the month. Due to severe weather, only 800 flights were actually flown. The manager is reviewing the static budget performance report and notices a large "Favorable" variance for fuel expenses, as total spending was much lower than the original budget. What is the most logical conclusion the manager should draw from this specific variance?
The variance is likely due to fewer flights, not efficiency.
The static budget underestimated the cost of fuel.
The pilots flew the planes more efficiently than expected.
The purchasing department negotiated cheaper fuel prices.
A report shows a small, insignificant unfavorable variance for "Water" expense for the fifth month in a row. Each month the variance gets slightly larger. Why might a manager choose to investigate this despite the small dollar amount?
Water is the most expensive cost item.
Small variances are easier to fix.
To generate a favorable revenue variance.
The pattern suggests a persistent, growing problem.
A fast-food chain sees a massive Favorable Activity Variance for revenue but a sharp drop in customer satisfaction scores. What is the likely situation?
They improved food quality.
Traffic surged, overwhelming the staff's capacity.
They cut staff to save money.
They raised prices and lost customers.
