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

Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier. The Packaged Mixes department incurs the following costs for each batch of churros mix: Direct Materials: $300 Direct Labor: $200 Variable Overhead: $200 Fixed Overhead: $150 In addition to the cost of the churros mix, the Finished Products Department would incur the following costs for each batch of churros: Direct Materials: $150 Direct Labor: $140 Variable Overhead: $300 Fixed Overhead: $100 Currently, the Packaged Mixes department has excess capacity. Sanchez currently sells the mix for $1,000 per batch. The Finished Products department is able to purchase the mix for $650 from an outside supplier. The finished churros from each batch will sell for a total of $1,500. Based on the decision that will maximize the overall benefit to Sanchez & Sons, what is the contribution margin per batch that can be realized by the Finished Products department?

What are the subcomponents of the flexible budget variance?

Sanchez & Sons is a Mexican baked-goods manufacturing firm. Sanchez has two main divisions: Packaged Mixes and Finished Products. The Finished Products division is considering purchasing the mix for its churros from an outside supplier. The Packaged Mixes department incurs the following costs for each batch of churros mix: Direct Materials: $300 Direct Labor: $200 Variable Overhead: $200 Fixed Overhead: $150 In addition to the cost of the churros mix, the Finished churros Products Department would incur the following costs for each batch of churros: Direct Materials: $150 Direct Labor: $140 Variable Overhead: $300 Fixed Overhead: $100 Currently, the Packaged Mixes department is producing at full capacity and would need to decrease production in another area in order to provide churro mix to the Finished Products department. Management estimates that $180 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 Products department is $800: this is the price at which Sanchez can purchase the mix from an outside supplier. The finished churros from each batch will sell for $1,500. Based on the decision that will maximize the overall benefit to Sanchez & Sons, what is the contribution margin per batch that can be realized by the Finished Products department?

What are responsibility centers?

When a supplying profit center is operating at full capacity, the minimum transfer price should be:

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

If management underestimates sales and production levels, then overall cost variances are likely to favorable.

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: Conner currently requires investments to meet a rate of return on asset investment of 5%. Which division has the greatest level of "residual income"?

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: Sales were 8,000 units In June. Each unit sells for $320. The R8D8 Department is being evaluated on overall profitability. In May, the department margin was $600,000. By how much did the department margin increase or decrease in June?

Morgan Chemical is a cleaning-supplies manufacturing company. Morgan has two main divisions of product types: Base Chemicals (used to create other products-frequently sold to other companies) and Commercial Brands (sold to consumers). The Commercial Brands division has the option to purchase the needed ingredients from the Base Chemicals department or to choose an outside supplier (depending on the agreed-upon transfer price). Extra demand for the following month is projected to be 500 gallons of Commercial Brands Chemicals. However, the Base Chemicals department is already producing at full capacity: to meet this demand, the Base Chemicals department would need to shift production from current projects, and management estimates that $100,000 in contribution margin would be lost as a result. The following are the expected costs for the extra production in the Base Chemicals department: An outside supplier has offered to produce the needed ingredients for $460/gallon. Should the Commercial Brands department purchase the chemicals from the Base Chemicals department or from the outside supplier?

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

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

If a business segment has a relatively low contribution margin, management may need to look into increasing prices of goods or reducing the cost of goods sold relating to that segment.

Which of the following costs would not be allocated to individual departments in a higher-level performance report?

A flexible budget generally presents all fixed costs on a per-unit cost basis - which changes based on the level of production.

It is helpful to segment a company according to type of customer targeted.

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

If a profit center has excess capacity to supply another profit center with a component for production, then the minimum transfer price is equal to the market price of the component.

What is the equation to calculate the minimum transfer price?

Which of the following would appear on a segmented contribution margin income statement?