Performance Measurement & Variance Analysis Flashcards

What does a favorable budget variance indicate?

Answer: Actual results were better than budgeted expectations

A favorable variance means actual performance exceeded the budget plan, such as lower costs or higher revenues than projected.

Which formula correctly calculates a spending (expenditure) variance?

Answer: Budgeted Cost – Actual Cost

A spending variance is computed as Budgeted Cost minus Actual Cost, so a positive result is favorable (spent less than budgeted).

A 'flexible budget' differs from a 'static budget' in that it:

Answer: Adjusts cost allowances based on actual activity levels

A flexible budget recalculates budgeted figures at the actual level of activity, enabling meaningful variance analysis by separating volume effects from efficiency effects.

Which variance measures the difference between budgeted revenue and actual revenue due solely to the difference in units sold?

Answer: Sales volume variance

The sales volume variance isolates the impact of selling more or fewer units than planned, holding price constant at the budgeted rate.

When analyzing variances, 'management by exception' means that managers should:

Answer: Focus investigative resources on variances that are material or exceed a threshold

Management by exception directs attention and resources to variances that are significant enough to warrant action, rather than investigating every minor deviation.

Which of the following is a key performance indicator (KPI) used to measure budget execution efficiency in the public sector?

Answer: Budget utilization rate

Budget utilization rate (actual expenditure as a percentage of appropriated budget) is a standard KPI in public-sector budget monitoring to assess whether agencies are spending as planned.

An unfavorable labor efficiency variance results when:

Answer: Actual hours worked exceed the standard hours allowed for actual output

A labor efficiency variance is unfavorable when actual hours worked are greater than the standard hours allowed, meaning workers took longer than planned to produce the output.