Exam 5: Understanding the Management Process

Transactions Systems Limited develops and leases software systems for community banks that support electronic transactions at automatic teller machines. The company developed quarterly sales goals for the current year and is now trying to assess progress against those goals. The table below contains data on the goal for each quarter and actual sales in that quarter. Required: Perform a gap analysis for each month and a trend analysis using a line chart. Which approach to the data is more informative?

Bella Corporation produces a varied line of high-quality cabinets widely used by custom builders and kitchen designers. Bella currently produces all of the hardware used in the cabinets including hinges, drawer mechanisms, etc. The company has been approached by an outside vendor, which has offered to sell these items to Bella. If the vendor's proposal is accepted, the machinery currently used to produce the hardware will be of no further use and will be sold. The company controller is studying the vendor's proposal and has assembled data on the costs listed below. Which of the costs listed is relevant to the make-or-buy decision?

Backyard Environments produces a water fountain for use in residential gardens. It currently purchases the small water pump used in the fountain from an outside supplier at a cost of $2 per pump. The company makes and sells 2 million of the fountains per year. The company's vice president of manufacturing has been considering a proposal to produce the pumps internally. The machinery needed to produce the pumps could be purchased for $20,000. The machine would have a useful life of four years. It would require two workers paid $20 per hour to operate it for 2,000 hours per year. The factory space needed to accommodate the new machine would displace another production department that would be required to lease outside space at an annual cost of $195,000. Materials would cost $1.75 per pump. Additional overhead would amount to 25% of labor cost. For the purpose of the make-or-buy decision, what is the relevant unit cost to produce the pumps internally?

An unexpected disruption in rail service eliminated a company's usual supply of a critical raw material. To avoid a disruption in production, the material needed was obtained from a new vendor with which the company had no prior relationship. This event is likely to have produced:

Grant Manufacturing uses a standard cost system with overhead applied based on direct labor hours. The manufacturing budget for the production of 5,000 units for the month of May included the following information. During May, 4,500 units were actually produced and the direct labor efficiency variance was $1,500 unfavorable. Required: Compute the actual number of direct labor hours that were used in May.

The Vulcan Mold and Iron Company has assembled the following data regarding the use of direct labor in its fabricating department. Based on the data provided, compute the labor efficiency variance for the period.

A Pareto chart is most appropriate if one wishes to assess performance on multiple dimensions simultaneously.

The materials price variance is measured as:

THE FOLLOWING QUESTIONS ARE BASED ON THE INFORMATION BELOW. Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is: Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment cannot be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer? -The $85,000 leasing cost is an incremental cost of producing the valve internally.

MinnOil performs oil changes and other minor maintenance services (e.g., tire pressure checks) for cars. The company advertises that all services are completed within 15 minutes for each service. On a recent Saturday, 160 cars were serviced resulting in the following labor variances: rate: $19 unfavorable; efficiency: $14 favorable. If MinnOil's standard labor rate is $7 per hour, determine the actual wage rate per hour and the actual hours worked.

In the most recently concluded period, a company experienced significantly less machine downtime than would be expected under normal circumstances. This could have produced:

Quaker Company refines a single raw material in a process that results in several joint products. The refining costs incurred prior to the split-off point where the joint products appear is irrelevant to the decision to further process any of the joint products.

Of the four types of benchmarks listed below, which is the most useful when a company has a number of different locations at which the same type of work is performed?

Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is: Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If the Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment can't be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer?

Retail stores often assess performance by comparing sales revenue of one period to sales revenue from the same period a year earlier. Such an appraisal of performance illustrates:

All of the following are examples of benchmarking standards except:

Whitney Company has recorded a total labor variance of $2,000 unfavorable and a labor rate variance of $300 favorable. The labor efficiency variance must have been $1,700 unfavorable.

An unfavorable material price variance indicates that: