Question 1

Performance evaluation of the segments of an organization should be done in a manner that promotes management by exception.

Accepted Answer

A) True 
 B)False

Question 2

In order to avoid suboptimization, many companies prefer to evaluate their investment centers using

Accepted Answer

A)  Return on investment instead of residual income. 
B)  Residual income instead of return on investment. 
C)  Gross margin instead of contribution margin. 
D)  Sales instead of income. 
A)  Return on investment instead of residual income. 
B)  Residual income instead of return on investment. 
C)  Gross margin instead of contribution margin. 
D)  Sales instead of income.

Question 3

Indicate whether each of the following statements is true or false.
_____ a) Use of residual income to evaluate managers of an investment center may avoid some of the suboptimization that can occur with use of return on investment as a performance measure.
_____ b) Residual income is stated as an absolute amount, not a ratio or percentage.
_____ c) One disadvantage with residual income as a measure of performance is that it causes larger divisions to appear to do better than smaller divisions.
_____ d) A balanced score card includes various nonfinancial performance measures but no financial performance measures.
_____ e) The balanced scorecard is a holistic approach to evaluating management and division performance.

Accepted Answer

a) True 
b

Question 4

A standard is the amount a price, cost, or quantity should be.

Accepted Answer

A) True 
 B)False

Question 5

How might return on investment be used in making resource allocation decisions within an organization?

Accepted Answer

Return on investment may be calculated f

Question 6

What causes the sales price variance to be unfavorable?

Accepted Answer

The sales price variance is un

Question 7

Select the incorrect statement regarding flexible budgets.

Accepted Answer

A)  Standard prices and costs are used in preparing a flexible budget. 
B)  A flexible budget is also known as a master budget. 
C)  Flexible budgets show estimated revenues and costs at multiple volume levels. 
D)  A flexible budget represents an extension of the master budget. 
A)  Standard prices and costs are used in preparing a flexible budget. 
B)  A flexible budget is also known as a master budget. 
C)  Flexible budgets show estimated revenues and costs at multiple volume levels. 
D)  A flexible budget represents an extension of the master budget.

Question 8

The Lester 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.

Accepted Answer

@#IMG-DLM& 2) The sales activity variances are in

Question 9

For 2012, the New Products Division of Tellis Company had operating income of $7,000,000 and operating assets of $38,800,000. Tellis has set a target return on investment (ROI) of 14% for each of its divisions.
The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Assuming that the new product is put into production, calculate the residual income for the division. Would the new product increase or decrease the division's residual income?

Accepted Answer

Residual income = ($7,000,000

Question 10

What are profit centers? How should the manager of a profit center be evaluated?

Accepted Answer

A profit segment is a segment of a busin

Question 11

Contribution margin would be one of the most important measurements used in evaluating the performance of a

Accepted Answer

A)  cost center. 
B)  profit center. 
C)  investment center. 
D)  organizational center. 
A)  cost center. 
B)  profit center. 
C)  investment center. 
D)  organizational center.

Question 12

Greenville 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 13,000 units.
Required:
Prepare a flexible budget based on 13,000 units.

Accepted Answer

The answer of Greenville Company estimates sales of 12,000 units...

Question 13

An investment opportunity with a return on investment that equals or exceeds zero should be accepted.

Accepted Answer

A) True 
 B)False

Question 14

Prater Company made a $100,000 investment in new machinery. Assuming the company's margin is 4%, what income will be earned if the investment generates $300,000 in additional sales?

Accepted Answer

A)  $40,000. 
B)  $12,000. 
C)  $200,000. 
D)  None of these. 
A)  $40,000. 
B)  $12,000. 
C)  $200,000. 
D)  None of these.

Question 15

Volume variances are computed for which of the following costs?

Accepted Answer

A)  Variable manufacturing costs only 
B)  Fixed manufacturing costs only 
C)  Variable selling and administrative costs only 
D)  Variable manufacturing and selling and administrative costs 
A)  Variable manufacturing costs only 
B)  Fixed manufacturing costs only 
C)  Variable selling and administrative costs only 
D)  Variable manufacturing and selling and administrative costs

Question 16

Based on the information given for a variance, indicate whether the variance is favorable or unfavorable. $$\begin{array} { | l | l | l | l | } 
\hline \text { Item to classify } & \text { Flexible budget } & \text { Actual } & \begin{array} { l } 
\text { Variance - Favorable or } \
\text { Unfavorable? }
\end{array} \
\hline \text { Cost of direct materials } & \$ 8,500 & \$ 8,350 & \
\hline
\end{array}$$

Accepted Answer

The answer of Based on the information given for a...

Question 17

Davies Company provided the following budgeted information for 2012. $$\begin{array} { | l | r | } 
\hline \text { Sales price } & \$ 50 \text { per unit } \
\hline \text { Variable manufacturing cost } & 32 \text { per unit } \
\hline \text { Fixed manufacturing cost } & \$ 100,000 \text { total } \
\hline \text { Fixed selling and administrative cost } & \$ 40,000 \text { total } \
\hline
\end{array}$$ 
Davies predicted that sales would be 20,000 units, but the sales actually were 22,000 units. The actual sales price was $48.50 per unit, and the actual variable manufacturing cost was $33 per unit. Actual fixed manufacturing cost and fixed selling and administrative cost were $104,000 and $39,000, respectively.
Required:
a) Using the form below, prepare a flexible budget; show actual results; calculate the flexible budget variances; and indicate whether the variances are favorable (F) or unfavorable (U). $$\begin{array} { | l | l | l | l | l | } 
\hline & \begin{array} { l } 
\text { Flexible } \
\text { Budget }
\end{array} & \text { Actual Results } & \begin{array} { l } 
\text { Flexible Budget } \
\text { Variance }
\end{array} & \begin{array} { l } 
\text { Favorable or } \
\text { unfavorable }
\end{array} \
\hline \text { Number of units } & & & & \
\hline \text { Sales Revenue } & & & & \
\hline \begin{array} { l } 
\text { Variable } \
\text { manufacturing } \
\text { costs }
\end{array} & & & & \
\hline \begin{array} { l } 
\text { Contribution } \
\text { margin }
\end{array} & & & & \
\hline \begin{array} { l } 
\text { Fixed } \
\text { manufacturing cost }
\end{array} & & & & \
\hline \begin{array} { l } 
\text { Fixed selling and } \
\text { administrative cost }
\end{array} & & & & \
\hline \text { Net income } & & & & \
\hline
\end{array}$$ 
b) Assess the company's performance compared to the flexible budget.

Accepted Answer

a) @#IMG-DLM& b) The company's performance did not

Question 18

For 2012, one division of Ashton Company reported operating assets of $5,000,000 and operating income of $620,000. Ashton has established a target return on investment (ROI) of 14% for the division.
Required:
a) Calculate the division's ROI for 2012. Did it achieve the target set by the company?
b) Assuming that operating assets for 2013 increase by 5%, by how much would operating income have to increase to reach the target of 14%?

Accepted Answer

a) ROI = $620,000/$5,000,000 = 12.4%. No

Question 19

How should the manager of a cost center be evaluated?

Accepted Answer

The manager of a cost center i

Question 20

Management by exception means that only unfavorable cost variances are investigated.

Accepted Answer

A) True 
 B)False

Performance evaluation of the segments of an organization should be done in a manner that promotes management by exception.

In order to avoid suboptimization, many companies prefer to evaluate their investment centers using

A standard is the amount a price, cost, or quantity should be.

How might return on investment be used in making resource allocation decisions within an organization?

What causes the sales price variance to be unfavorable?

Select the incorrect statement regarding flexible budgets.

What are profit centers? How should the manager of a profit center be evaluated?

Contribution margin would be one of the most important measurements used in evaluating the performance of a

Greenville 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 13,000 units. Required: Prepare a flexible budget based on 13,000 units.

An investment opportunity with a return on investment that equals or exceeds zero should be accepted.

Prater Company made a $100,000 investment in new machinery. Assuming the company's margin is 4%, what income will be earned if the investment generates $300,000 in additional sales?

Volume variances are computed for which of the following costs?

Based on the information given for a variance, indicate whether the variance is favorable or unfavorable. Item to classify Flexible budget Actual Variance - Favorable or Unfavorable? Cost of direct materials \ 8,500 \ 8,350

How should the manager of a cost center be evaluated?

Management by exception means that only unfavorable cost variances are investigated.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Planning for Capital Investments

Filters

Exam 15: Performance Evaluation

Performance evaluation of the segments of an organization should be done in a manner that promotes management by exception.

In order to avoid suboptimization, many companies prefer to evaluate their investment centers using

A standard is the amount a price, cost, or quantity should be.

How might return on investment be used in making resource allocation decisions within an organization?

What causes the sales price variance to be unfavorable?

Select the incorrect statement regarding flexible budgets.

What are profit centers? How should the manager of a profit center be evaluated?

Contribution margin would be one of the most important measurements used in evaluating the performance of a

Greenville 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 13,000 units. Required: Prepare a flexible budget based on 13,000 units.

An investment opportunity with a return on investment that equals or exceeds zero should be accepted.

Prater Company made a $100,000 investment in new machinery. Assuming the company's margin is 4%, what income will be earned if the investment generates $300,000 in additional sales?

Volume variances are computed for which of the following costs?

Based on the information given for a variance, indicate whether the variance is favorable or unfavorable. Item to classify Flexible budget Actual Variance - Favorable or Unfavorable? Cost of direct materials \ 8,500 \ 8,350

How should the manager of a cost center be evaluated?

Management by exception means that only unfavorable cost variances are investigated.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Accounting for Liabilities

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Planning for Capital Investments

Filters