Exam 11: Flexible Budgets, Segment Analysis, and Performance Reporting

The flexible budget report provides a more accurate representation of a company's cost performance than the static budget report.

A flexible budget is only useful for evaluating a company's performance during the fiscal period, not after.

Conner Manufacturing has two major divisions. Management wants to compare their relative performance. Information related to the two divisions is as follows: Division 1: Division 2: Management discovers that the ROI is the same for both divisions, and wants a deeper evaluation. Which division has a higher efficiency in the use of assets to generate sales?

The following information is available for Apex Manufacturing, Inc. for this last year: What is the Variable Overhead Static Budget Variance?

If budgeted production is higher than actual production, static budget cost variances are likely to be unfavorable.

What are common expenses?

Bored Boards (BB) is a plywood manufacturing company. BB has two main divisions of product types: Construction Plywood (a rougher product with more knots and blemishes) and Project Plywood (sold for constructing cabinetry and other finished products). The Project Plywood division has the option to purchase the needed panels from the Construction Plywood department or to choose an outside supplier (depending on the agreed-upon transfer price). Extra demand for the following month is projected to be 300 panels of Project Plywood. However, the Construction Plywood department is already producing at full capacity: to meet this demand, the Construction Plywood department would need to shift production from current projects, and management estimates that $30,000 in contribution margin would be lost as a result. The following are the expected costs for the extra production in the Construction Plywood department: Direct Materials: $8,000 Direct Labor: $10,000 Variable Overhead: $18,000 An outside supplier has offered to produce the needed panels for $200/panel. Should the Project Plywood department purchase the panels from the Construction Plywood department or from the outside supplier?

Under-estimating production levels will likely lead to:

The following information is available for West Chemical Corporation for this last year: What is the Direct Labor Static Budget Variance?

Tapping Danes Inc. is a manufacturing company that has two production divisions. Both divisions report their costs to the Sales division, which is considered the profit center of the company. Information for the production divisions is as follows: DIVISION 1: DIVISION 2: Which division is considered the most profitable for the period?

SJL Co. is a manufacturing company that has two major divisions. Both divisions have required a significant investment, and management wants to compare the performance of the two divisions. Below is information related to the two divisions. Division 1: Division 2: Based on ROI, which division is more profitable? Is it due to efficient asset use or relative profitability of sales or both?

If the market price of a good is below the minimum transfer price, the buying profit center should:

The Asset Turnover ratio measures the whether a department is using their assets in a profitable manner.

HSS Company provides security services to senior executives of prominent corporations when they travel outside the United States. HSS applies both fixed and variable overhead using direct labor hours. The annual budget for one if its customers is as follows: During the year, HSS had the following activity related to this customer: $\bullet$ Actual hours were 850 at a total cost of $44,200. $\bullet$ Actual fixed overhead was $12,750. $\bullet$ Actual variable overhead was $22,950. What is the Variable Overhead Flexible Budget Variance?

Department management should be held responsible for allocated common fixed costs.

If budgeted production is higher than actual production, will static budget cost variances likely be favorable or unfavorable?

How does the DuPont formula provide further insight into ROI?

The following information is available for Happy Doodles Inc. for this last year: What is the overall Flexible Budget Variance?

Unplanned increases in per-unit costs could be hidden on the static budget report by:

HSS Company provides security services to senior executives of prominent corporations when they travel outside the United States. HSS applies both fixed and variable overhead using direct labor hours. The annual budget for one if its customers is as follows: During the year, HSS had the following activity related to this customer: $\bullet$ Actual hours were 850 at a total cost of $44,200. $\bullet$ Actual fixed overhead was $12,750. $\bullet$ Actual variable overhead was $22,950. What is the overall Flexible Budget Variance?