Exam 8: Performance Evaluation

Indicate whether each of the following statements is true or false. The difference between the actual fixed costs and budgeted fixed costs is the spending variance.______ For fixed costs,there is no flexible budget variance.______ Companies generally do not calculate a volume variance for fixed overhead costs.______ The volume variance is the difference between budgeted fixed cost and the applied fixed cost for the period.______ If the amount of fixed overhead applied to production is greater than the budgeted fixed overhead,the result is an unfavorable overhead volume variance.______

Which of the following can reduce the amount of employees' budget gamesmanship?

A favorable flexible budget materials variance may indicate that the price per unit of materials was lower than expected and that less material was used than expected,or either of these.

Abbot Company spent less than expected for materials and more than expected for labor.Select the incorrect statement from the following.

Timberlake Company planned for a production and sales volume of 12,000 units.However,the company actually makes and sells 13,000 units. Per unit standards Static Budget Flexible Budget Number of units 12,000 13,000 Sales revenue \ 65.00 \ 780,000 \ 845,000 Variable manufacturing costs: Materials \ 11.00 Labor \ 9.00 108,000 117,000 Overhead \ 4.20 50,400 54,600 Variable general, selling, and administrative costs \ 11.00 132,000 143,000 Contribution margin \ 357,600 \ 387,400 Fixed costs Manufacturing overhead 100,800 100,800 General, selling, and administrative costs Net income What was the total variable cost volume variance?

Select the correct statement regarding flexible budgets.

Sanchez Company established a direct materials standard of 4 pounds at $4.50 per pound for one of its products.During March,Sanchez purchased 15,000 pounds at $4.42 per pound. Required: Based on this information, (a)Which variance can you calculate? (b)What is the dollar amount of the variance? (c)Is the variance favorable or unfavorable? (d)Do you consider the variance to be sufficiently material that managers should investigate to discover the cause of the variance?

Select the incorrect statement.

At the beginning of the period,Cambridge Company estimated that sales would be 10,000 units.Actual sales totaled 14,000 units.The manager was very excited about the unexpected additional income that the extra 4,000 units would produce.Imagine her surprise upon seeing the following report: Static Budget Actual Results Number of units 10,000 14,000 Sales \ 500,000 \ 600,000 Less variable costs: Materials 120,000 164,000 Labor 100,000 134,000 Overhead 50,000 72,000 Selling and administrative Contribution margin \ 210,000 \ 200,000 Less fixed costs: Manufacturing 30,000 32,000 Selling and administrative Net income The company's owner is very upset,charging that the manager did a lousy job of controlling costs. Required: 1)Prepare a performance report that can be used to evaluate the owner's charge that the manager did a poor job of controlling costs.Be sure to label variances as favorable or unfavorable. 2)Is the owner justified in charging the manager with poor cost control? Why or why not?

With respect to cost variances,managers seek to achieve actual costs that are higher than standard costs.

Monroe Corporation budgeted fixed costs of $250,000 for the current year.The company expected to make 20,000 units during the year.Actual fixed costs were $256,000,and Monroe actually made 22,000 units of product. Required: (a)Calculate the fixed cost spending variance and indicate whether it is favorable or unfavorable. (b)Calculate the fixed cost volume variance and indicate whether it is favorable or unfavorable.Explain why the variance is favorable or unfavorable.

Indicate whether each of the following statements is true or false. In deciding whether to investigate a variance,managers should consider the materiality,but not the type or direction,of the variance.______ A material variance is one that will influence stockholders' investment decisions.______ The primary advantage of a standard cost system is controlling costs efficiently.______ Ideal standards will likely lead to variances that need not be investigated because they are not the result of abnormalities.______ Even a well-established and -maintained standard cost system is likely to damage employee morale.______

How are managers likely to respond if variances are used to punish them?

The two factors that determine the costs of manufacturing inputs (materials,labor,and overhead)are price and quantity.

Which range of difficulty should normally be used to develop standards?

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ \6 per gallon) \1 8.00 Direct labor (2 hours@ \1 0per hour) \2 0.00 During the period,the company produced and sold 22,000 units,incurring the following costs: Direct material 68,00 Cgallons @ \ 5.90 per gallon Direct labor 45,500 hours @ \ 9.75 per hour The direct material usage variance was:

Achieving the sales volume in the master budget is known as:

The Russell Company provides the following standard cost data per unit of product: Direct material (3 gallons @ \6 per gallon) \1 8.00 Direct labor (2 hours@ \1 0per hour) \2 0.00 During the period,the company produced and sold 22,000 units,incurring the following costs: Direct material 68,00 Cgallons @ \ 5.90 per gallon Direct labor 45,500 hours @ \ 9.75 per hour The direct material price variance was:

Item to Classify Standard Actual Sales volume 100,000 units 96,000 units Sales price \ 4 per unit \3 .90 per unit Material usage 40,000 gallons 42,000 gallons Labor price 12.50 per hour 12.45 per hour Which of the following statements is incorrect?

For a product made by George Company,last year's standards for labor were 2 hours at $12 per hour.Which of the following considerations should George take into account in setting the standards for this year?