Exam 15: Performance Evaluation

Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 7,000 units: Per Unit Revenue \ 7.00 Variable costs Contribution margin \ 4.00 Fixed costs Net income If actual production totals 8,000 units which is within the relevant range, the flexible budget would show fixed costs of:

Indicate whether each of the following statements about responsibility centers is true or false.A responsibility center controls identifiable revenue or expense items.To be designated as a responsibility center, a department need not be a large segment of an organization.A cost center generates revenues and expenses.Investment centers are commonly found at upper levels of the organization chart.The manager of a profit center is evaluated based primarily on his/her ability to control costs.

Ick Manufacturing Company established the following standard price and cost information: Sales price \ 50 per unit Variable manufacturing cost \ 32 per unit Fixed manufacturing cost \ 100,000 total Fixed selling and administrative cost \ 40,000 total Ick expected to produce and sell 20,000 units. Actual production and sales amounted to 21,500 units.Required:Prepare the pro forma income statement in contribution format that would appear in Ick's master budget for the year.Prepare the income statement in contribution format that would appear in Ick's flexible budget.

Retail Sales and Wholesale Sales are the only divisions of Terra Company. The following information was gathered for the two divisions for the current year: Retall D1vislon Wholesale Division Operating income \ 2,500,000 \6 ,000,000 Operating assets \ 16,000,000 \3 6,000,000 The company has $1,200,000 in operating assets that are not assigned to either of the divisions and $500,000 in corporate expenses that are not reflected in the information above. Based on this information, what is the ROI for the company as a whole?

Canton Company estimates sales of 12,000 units for the upcoming period. At this sales volume its budgeted income is as follows: During the period the company actually produced and sold 14,000 units. Required:The manager now wants to evaluate the company's performance by comparing actual costs and revenues to those shown above but you have advised against it. Explain your reasoning.Prepare a flexible budget based on 14,000 units.If management compares actual revenues and costs to the appropriate flexible budget, will they be able to fully understand what went right and what went wrong with the operation during the period? Why or why not?

If the master budget prepared at a volume level of 20,000 units includes factory rent of $40,000, a flexible budget based on a volume of 21,000 units would include factory rent of $40,000.

Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: Retall D1vislon Wholesale Division Operating income \ 2,500,000 \6 ,000,000 Operating assets \ 16,000,000 \3 6,000,000 Assuming that these are the only divisions of Terra Company, what is the ROI for the company as a whole?

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units and average selling price was $6.12. The sales volume variance was:

The Electronics Division of Anton Company reports the following results for the current year: Revenues \ 508,000 Operating expenses \ 456,000 Operating income \ 52,000 Operating assets \ 620,000 Anton Company has set a target return on investment (ROI) of 14% for the Electronics Division. The Electronic Division's margin is:

When would a sales price variance be listed as unfavorable?

The following static budget is provided: Per Unit Total Sales \5 0 \8 00,000 Less variable costs: Manufacturing costs 20 320,000 Selling and administrative costs Contribution margin \2 0 \3 20,000 Less fixed costs: Manufacturing costs 84,000 Selling and administrative costs Total fixed costs Net income What will be the overall volume variance if 13,700 units are produced and sold?

Select the incorrect statement regarding flexible budgets.

When would a sales variance be listed as favorable?

The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units and average selling price was $5.95. The sales price variance was:

The general formula for return on investment is revenue divided by investment in assets.

Stafford Company prepared a static budget for a production and sales volume of 10,000 units. What is net income if 9,000 units are sold?

When would a variance be labeled as favorable?

Which of the following applications is most suited for developing flexible budgets?

Joseph Company reported the following information for the current year: Sales \8 00,000 Average operating assets \3 88,000 Desired ROI 13\% Residual income \1 1,900 The company's operating income was:

Which of the following is not typically found in a decentralized organization?