Chapter 9
Flexible Budgets and Performance Analysis
Solutions to Questions
9-1 A planning budget is prepared before the occurs because the cost has some variable
period begins and is valid for only the planned component and the actual level of activity is
level of activity. It is sometimes referred to as a greater than the planned level of activity.
static planning budget because it is not adjusted
even if the level of activity 9-6 If the actual level of activity is greater
subsequently changes. than the planned level of activity, the activity
variances for variables expenses will be
9-2 A flexible budget can be adjusted to unfavorable.
reflect any level of activity—including the actual
level of activity. By contrast, a static planning 9-7 A revenue variance is the difference
budget is prepared for a single level of activity between the actual revenue for the period and
and is not subsequently adjusted. how much the revenue should have been, given
the actual level of activity. A revenue variance is
9-3 Actual results can differ from the budget easy to interpret. A favorable revenue variance
for many reasons. Very broadly speaking, the occurs because the revenue is greater than
differences are usually due to a change in the expected for the actual level of activity. An
level of activity, changes in prices, and changes unfavorable revenue variance occurs because
in how effectively resources are managed. the revenue is less than expected for the actual
level of activity.
9-4 As noted above, a difference between
the budget and actual results can be due to 9-8 A spending variance is the difference
many factors. Most importantly, the level of between the actual amount of the cost and how
activity can have a very big impact on costs. much a cost should have been, given the actual
From a manager’s perspective, a variance that is level of activity. Like the revenue variance, the
due to a change in activity is very different from interpretation of a spending variance is straight-
a variance that is due to changes in prices and forward. A favorable spending variance occurs
changes in how effectively resources are because the cost is lower than expected for the
managed. A variance of the first kind requires actual level of activity. An unfavorable spending
very different actions from a variance of the variance occurs because the cost is higher than
second kind. Consequently, these two kinds of expected for the actual level of activity.
variances should be clearly separated from each
other. When the budget is directly compared to 9-9 In a flexible budget performance report,
the actual results, these two kinds of variances the actual results are not directly compared to
are lumped together. the static planning budget. The flexible budget is
interposed between the actual results and the
9-5 An activity variance is the difference static planning budget. The differences between
between a revenue or cost item in the flexible the flexible budget and the static planning
budget and the same item in the static planning budget are activity variances. The differences
budget. An activity variance is due solely to the between the actual results and the flexible
difference in the actual level of activity used in budget are the revenue and spending variances.
the flexible budget and the level of activity The flexible budget performance report cleanly
assumed in the planning budget. Caution should separates the differences between the actual
be exercised in interpreting an activity variance. results and the static planning budget that are
The ―favorable‖ and ―unfavorable‖ labels are due to changes in activity (the activity
perhaps misleading for activity variances that variances) from the differences that are due to
involve costs. A ―favorable‖ activity variance for changes in prices and the effectiveness with
a cost occurs because the cost has some which resources are managed (the revenue and
variable component and the actual level of spending variances).
activity is less than the planned level of activity.
An ―unfavorable‖ activity variance for a cost
,© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 9 603
,9-10 The only difference between a flexible may be a function of the first cost driver, some
budget based on a single cost driver and one costs may be a function of the second cost
based on two cost drivers is the cost formulas. driver, and some costs may be a function of both
When there are two cost drivers, some costs cost drivers.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 9
, Chapter 9: Applying Excel
The completed worksheet is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 9 605
Flexible Budgets and Performance Analysis
Solutions to Questions
9-1 A planning budget is prepared before the occurs because the cost has some variable
period begins and is valid for only the planned component and the actual level of activity is
level of activity. It is sometimes referred to as a greater than the planned level of activity.
static planning budget because it is not adjusted
even if the level of activity 9-6 If the actual level of activity is greater
subsequently changes. than the planned level of activity, the activity
variances for variables expenses will be
9-2 A flexible budget can be adjusted to unfavorable.
reflect any level of activity—including the actual
level of activity. By contrast, a static planning 9-7 A revenue variance is the difference
budget is prepared for a single level of activity between the actual revenue for the period and
and is not subsequently adjusted. how much the revenue should have been, given
the actual level of activity. A revenue variance is
9-3 Actual results can differ from the budget easy to interpret. A favorable revenue variance
for many reasons. Very broadly speaking, the occurs because the revenue is greater than
differences are usually due to a change in the expected for the actual level of activity. An
level of activity, changes in prices, and changes unfavorable revenue variance occurs because
in how effectively resources are managed. the revenue is less than expected for the actual
level of activity.
9-4 As noted above, a difference between
the budget and actual results can be due to 9-8 A spending variance is the difference
many factors. Most importantly, the level of between the actual amount of the cost and how
activity can have a very big impact on costs. much a cost should have been, given the actual
From a manager’s perspective, a variance that is level of activity. Like the revenue variance, the
due to a change in activity is very different from interpretation of a spending variance is straight-
a variance that is due to changes in prices and forward. A favorable spending variance occurs
changes in how effectively resources are because the cost is lower than expected for the
managed. A variance of the first kind requires actual level of activity. An unfavorable spending
very different actions from a variance of the variance occurs because the cost is higher than
second kind. Consequently, these two kinds of expected for the actual level of activity.
variances should be clearly separated from each
other. When the budget is directly compared to 9-9 In a flexible budget performance report,
the actual results, these two kinds of variances the actual results are not directly compared to
are lumped together. the static planning budget. The flexible budget is
interposed between the actual results and the
9-5 An activity variance is the difference static planning budget. The differences between
between a revenue or cost item in the flexible the flexible budget and the static planning
budget and the same item in the static planning budget are activity variances. The differences
budget. An activity variance is due solely to the between the actual results and the flexible
difference in the actual level of activity used in budget are the revenue and spending variances.
the flexible budget and the level of activity The flexible budget performance report cleanly
assumed in the planning budget. Caution should separates the differences between the actual
be exercised in interpreting an activity variance. results and the static planning budget that are
The ―favorable‖ and ―unfavorable‖ labels are due to changes in activity (the activity
perhaps misleading for activity variances that variances) from the differences that are due to
involve costs. A ―favorable‖ activity variance for changes in prices and the effectiveness with
a cost occurs because the cost has some which resources are managed (the revenue and
variable component and the actual level of spending variances).
activity is less than the planned level of activity.
An ―unfavorable‖ activity variance for a cost
,© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 9 603
,9-10 The only difference between a flexible may be a function of the first cost driver, some
budget based on a single cost driver and one costs may be a function of the second cost
based on two cost drivers is the cost formulas. driver, and some costs may be a function of both
When there are two cost drivers, some costs cost drivers.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 9
, Chapter 9: Applying Excel
The completed worksheet is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 9 605
