Question

True Or False

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

2-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. (       )

3-The activity variance for revenue is favorable if the actual revenue for the period exceeds the revenue in the static planning budget. (       )

4-An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed. (       )

5-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. (       )

6-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. (       )

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

8-A flexible budget performance report contains activity variances but not revenue or spending variances. (       )

9-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. (       )

10-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. (       )

Answer 1

1.False

Fixed cost is included in flexible budget as the flexible budget considers the actual activity level instead of standard activity level as the actual activity level may be less or more than the standard activity level.

2.True

Standard cost for actual output is computed and then performance is measured. ,it helps in assessing how well a manager has controlled costs.

3.True

An activity variance is the difference between cost or revenue in flexible budget and cost or revenue in static budget.The activity variance for revenue would be favorable if actual revenue for the period is higher than the revenue expected in static budget.

4.True

The activity variance for recenue is said to be unfavorableif the actual level of activity is less than planned activity in static budget.