Exam 8: Performance Evaluation

Pfeiffer Company produces a number of products, including a small American flag. The firm, which began operations at the beginning of the current year, uses a standard cost system. The standard costs for one American Flag are provided below: The $0.50 fixed overhead rate is based on total budgeted fixed overhead costs of $17,000. There were no changes in any inventory account during the period. The company produced and sold 35,000 units at the following costs: Required: 1) Compute and label as Favorable (F) or Unfavorable (U) the following flexible budget variances: 2) Comment on the firm's performance. Direct material (0.5@\ 1.00) \ 0.50 Direct labor (1.@\ 10.00) 10.00 Variable overhead (1.\ \ 1.00) 1.00 Fixed overhead (1.@\ 0.50) .50 \1 2.00 Direct materials (18,000 yds. ) \ 17,280 Direct labor (36,000) 374,400 Variable factory overhead 34,500 Fixed factory overhead 15,000 a) Direct materials price variance b) Direct materials usage variance c) Direct labor price variance d) Direct labor usage variance e) Total variable overhead variance f) Fixed overhead spending variance g) Fixed overhead volume variance

Ick Manufacturing Company established the following standard price and cost information: Ick expected to produce and sell 20,000 units. Actual production and sales amounted to 21,500 units.Required: (a) Prepare the pro forma income statement in contribution format that would appear in Ick's master budget for the year.(b) Prepare the income statement in contribution format that would appear in Ick's flexible budget. Sales price \ 50 per unit Variable manufacturing cost 32 per unit Fixed manufacturing cost \ 100,000 total Fixed selling and administrative cost \ 40,000 total

Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job. The difference between inflated and realistic standards is known as:

Which manager is usually held responsible for materials usage variances?

The sales volume variance is the difference between the:

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

The Vermont Company has requested a performance report that reports both sales activity variances and flexible budget variances. The following table of information is provided: Required: 1) Compute and enter variances in columns 3 and 6. In column 3, enter the variance (difference) between column 2 and column 5; in column 4, label the variance as favorable (F) or unfavorable (U). In column 6, enter the variance between columns 5 and 8, and in column 7 indicate whether this variance is favorable or unfavorable.2) Which column contains sales volume variances and which column contains flexible budget variances? 3) Comment on this company's performance.

What is the result when the quantity of materials used is less than the standard quantity?

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?

Shia Company makes a product that is expected to require 2 hours of labor per unit of product. The standard cost of labor is $5.20. Shia actually used 2.1 hours of labor per unit of product. The actual cost of labor was $5.30 per hour. Shia made 1,000 units of product during the period. Based on this information alone, the labor price variance is:

Indicate whether each of the following statements is true or false.Standards for direct materials and direct labor should be set by a company's accounting department.Standards for direct materials and direct labor should be re-evaluated frequently in order to remain relevant and useful.Historical information is of little use in establishing standards.A standard represents what should be, not what is or was.Managers should consider behavioral implications when developing standards.

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

Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually makes and sells 13,000 units.What was the sales volume variance? Static Budget Flexible Budget Number of units 12,000 13,000 Per unit standards Sales revemue \ 65.00 \7 80,000 \8 45,000 Variable manufacturing costs Materials \ 11.00 132,000 143,000 Labor \ 9.00 108,000 117,000 Overhead \ 4.20 50,400 54,600 Variable G,S\&A \ 11.00 132,000 143,000 Contribution margin \ 357,600 \ 387,400 costs Manufacturing overhead 100,800 100,800 ,\& 45,000 45,000 Net income \ 211,800 \ 241,600

The following static budget is provided: What will budgeted net income equal if 21,000 units are produced and sold? (Do not round intermediate calculations.)

Kokko Company makes a product that is expected to require 2 hours of labor per unit of product. The standard cost of labor is $6.00. Kokko actually used 2.1 hours of labor per unit of product. The actual cost of labor was $6.25 per hour. Kokko made 1,100 units of product during the period. Based on this information alone, the labor usage variance is:

Which manager is generally held responsible for the sales volume variance?

The Wentworth Company, estimating its sales to be 40,000 units for the upcoming period, prepared the following static budget: The owner of the business is not so sure about the 40,000 unit sales volume and has requested additional budgets.Required: In the table provided, prepare two additional budgets, one at 90% of the static budget volume level and one at 110% of the static budget volume level. Units: 40,000 Sales \ 400,000 Less variable costs: Manufacturing costs 140,000 Selling and administrative costs 80,000 Contribution margin \ 180,000 Less fixed costs: Manufacturing costs 44,000 Selling and administrative costs 34,000 Net income \ 102,000

If the master budget prepared at a volume level of 10,000 units includes direct labor of $10,000, a flexible budget based on a volume of 11,000 units would include direct labor of $10,000.

Grenada Company estimates sales of 15,000 units for the upcoming period. At this sales volume its budgeted income is as follows: During the period the company actually produced and sold 18,000 units.Required: Prepare a flexible budget based on 18,000 units.

Canton Company estimates sales of 12,000 units for the upcoming period. At this sales volume its budgeted income is as follows: During the period the company actually produced and sold 14,000 units.Required: 1) The manager now wants to evaluate the company's performance by comparing actual costs and revenues to those shown above but you have advised against it. Explain your reasoning.2) Prepare a flexible budget based on 14,000 units.3) If management compares actual revenues and costs to the appropriate flexible budget, will they be able to fully understand what went right and what went wrong with the operation during the period? Why or why not? Per Unit 12,000 Units Sales \ 30 \ 360,000 Less varnble costs: Manufacturing costs 16 192,000 Selling and administrative costs 8 96,000 Contribution margin \6 \7 2,000 Less fixed costs: Marnufacturing costs 20,000 Selling and administrative costs 45,000 Net income \7 ,000