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

The ROI is found by dividing Net Sales by Total Assets.

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

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

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 Static Budget Variance?

MC Ryan 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 following divisions is as follows: Which division is considered the most profitable for the period?

Why are static budget variances of little use to management?

Over-estimating production levels will likely lead to:

Use the following information to complete Problems below Komfort Mattress Co. produces foam-topped mattresses and foam mattress pads. The mattress pads were originally designed to be a component of the mattresses (1 pad per mattress). However, the market for mattress pads was profitable enough that management has opted to sell some of the pads on their own. Any pads produced beyond what is necessary to meet the needs of mattress production are sold at market prices. Normally, the transfer cost of the pads is equal to the market sale price. Because of the differentiation strategy, management at Komfort has decided that the Mattress department and the Pads department should be measured and tracked separately. When pads are transferred to the Mattress department, they are inventoried at market prices. The following information relates to the costs of production for the year for the two departments. Per the company policy, all inventories are kept at stable levels: in other words, sales and production are equal, and purchases of raw materials equal those requisitioned for production. -Assume that in problem 3, Komfort accepts the order and produces the mattress pads rather than purchasing them. What would be the overall static budget cost variance for the year for the whole company?

Higher-level performance reports should allocate both traceable and common fixed costs to lower departments.

Jumping Joes is a manufacturing company that has two major divisions. Both divisions have required a significant investment, and management wants to compare their performance. Below is information related to the two divisions. Division A: Sales: $80,000,000 Expenses: $70,000,000 Asset investment: $150,000,000 Division B: Sales: $50,000,000 Expenses: $40,000,000 Asset investment: $150,000,000 Management is confused that the ROI seems to be the same for both divisions, and wants a deeper evaluation. Which division has a higher efficiency in the use of assets to generate sales?

Delegating the operations of a business to lower management can create a burden on upper management due to the increased oversight needed.

Which of the following is not important to know when preparing the flexible budget performance report?

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

Julian Hook Co. is a large company that segments its business into cost and profit centers. The Cost center for the manufacture of Product R8D8 incurred the following costs in June: The R8D8 Department reports the results of production to the Sales department for the plant. Sales were 8,000 units in June. Each unit sells for $320. What were the total costs reported to the profit center in June?

Larson Bros. is a manufacturing company that has two major divisions. Both divisions have required a significant investment, and management wants to compare their performance. Below is information related to the two divisions. Management is confused that the ROI seems to be the same for both divisions and wants a deeper evaluation. Which division has a higher efficiency in the use of assets to generate sales?

What is the minimum transfer price if a department has excess capacity to meet another department's demand for goods or services?

Mangum Co. is a large company that segments its business into cost and profit centers. The Cost center for the manufacture of Product M2T incurred the following costs in October: Sales were 2,000 units in October. Each unit sells for $210. The M2T Department is being evaluated on overall profitability. In September, the department margin was $100,000. By how much did the department margin increase or decrease in October?

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 Direct Labor Flexible Budget Variance?

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

Bagley & Daughters is a baked-goods manufacturing firm. Bagley has two main divisions: Packaged Mixes and Finished Desserts. The Finished Desserts division is considering purchasing the mix for its cakes from an outside supplier. The Packaged Mixes department incurs the following costs for each batch of cake mix: In addition to the cost of the cake mix, the Finished Desserts Department would incur the following costs for each batch of cakes: Currently, the Packaged Mixes department is producing at full capacity and would need to decrease production in another area in order to provide cake mix to the Finished Desserts department. Management estimates that $50 of contribution margin would be lost by the decrease in other areas. The current market price for the quantity of mix needed by the Finished Desserts department is $200: this is the price at which Bagley can purchase the mix from an outside supplier. The finished cakes from each batch will sell for $400. Based on the decision that will maximize the overall benefit to Bagley & Daughters, what is the contribution margin per batch that can be realized by the Finished Desserts department?