ACNT 2402 Chapter 8 – Flexible Budgets, Standard Costs, and Variance Analysis Study Guide

1. Comparing a static planning budget to actual costs is a good way to assess whether variable costs are under control. FALSE 2. Directly comparing a static planning budget to actual costs helps to distinguish between differences in costs that are due to changes in activity and differences that are due to how well costs were controlled. FALSE 3. Fixed costs should be ignored when evaluating how well a manager has controlled costs. FALSE 4. Fixed costs should be included in a flexible budget even though they do not change when the level of activity changes. TRUE 5. When a flexible budget is used in performance evaluation, actual costs are compared to the static planning budget rather than to what the costs should have been for the actual level of activity during the period. FALSE 6. A flexible budget should not be used when making comparisons to actual results such as actual expenses. FALSE 7. A flexible budget cannot be used to estimate what costs should have been at a given level of activity. FALSE 8. A flexible budget can be used to estimate what revenues and costs should have been, given the actual level of activity for the period. TRUE 9. A spending variance is the difference between the cost in the static planning budget and the actual amount of the cost for the period. FALSE 10. A revenue variance is favorable if the actual revenue exceeds what the revenue should have been for the actual level of activity of the period. TRUE Page 2 of 28 11. A revenue variance is unfavorable if the actual revenue is less than the revenue in the static planning budget. FALSE 12. An unfavorable spending variance may reflect waste as well as paying too much for inputs. TRUE 13. The revenue and spending variances are the differences between the flexible budget and the actual results for the period. TRUE 14. A favorable spending variance occurs when the actual cost exceeds the amount of the cost in the static planning budget. FALSE 15. Controllability has little to do with whether a cost is fixed or variable. TRUE 16. A direct materials quantity st