Chapter 16 final

Question 1

Variance

Answer 1

difference between planned result and actual outcome

Question 2

Favorable variance

Answer 2

when taken alone, increases operating profit

Question 3

Unfavorable variance

Answer 3

when taken alone, decreases operating profit

Question 4

Master/Static Budget

Answer 4

• Developed for one level of sales volume
• Does not change after being developed
• Also known as a “Master” Budget

Question 5

Flexible Budget

Answer 5

• Developed for several levels of sales volume
• Budget that indicates revenues, costs, and profits for different levels of activity
• Separates the fixed and variable costs

Question 6

Sales Acitivity Variance

Answer 6

• Also known as Sales Volume Variance
• Difference between operating profit in the Master Budget and operating profit in the Flexible Budget that arises because the actual number of units sold is different from the budgeted number
  -Isolates the change in operating profits caused by the actual sales activity vs Master Budget
• For sales revenue = (actual units - budgeted units)budgeted sales unit price
  -For variable costs = (actual units - budget units)budgeted unit cost

Question 6

Flexible Budget Variance

Answer 6

• Actual results versus flexible budget
• Occurs when sales price per unit, variable cost per unit, and/or fixed cost was different than planned
  Also known as “Total cost variance”