Question

True or false: A static budget is being compared to actual activity. The variance is F for net income but U for most expenses. This suggests that actual activity was lower than budgeted.

Answer 1

Based on the fact that the variance for revenue was favorable and the variance for expenses was unfavorable, this statement is false.

Why is this statement false?

If revenue is favorable compared to the static budget and expenses are unfavorable, then it means that there was more activity.

Because there was more activity, the expenses that were budgeted for were less than the actual expenses which is why expenses were unfavorable.

In conclusion, this is false.

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