Exam 9: Performance Measurement in Decentralized Organizations

Gilson Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During April, the company budgeted for 5,100 units, but its actual level of activity was 5,060 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for April: Data used in budgeting: Actual results for April: The revenue variance for April would be closest to:

Comparing a static planning budget to actual costs is a good way to assess whether variable costs are under control.

Desue Corporation makes a product with the following standards for labor and variable overhead: The company budgeted for production of 6,500 units in December, but actual production was 6,300 units. The company used 610 direct labor-hours to produce this output. The actual variable overhead rate was $6.40 per hour. The company applies variable overhead on the basis of direct labor-hours. The variable overhead efficiency variance for December is:

The Fischer Corporation uses a standard costing system. The following data have been assembled for December: The standard hours allowed for December's production is:

A major weakness of flexible budgets is that:

Jackson Industries uses a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for one unit of product. During May, Jackson purchased 125,000 pounds of direct material at a total cost of $475,000. The total factory wages for May were $364,000, 90 percent of which were for direct labor. Jackson manufactured 22,000 units of product during May using 108,000 pounds of direct material and 28,000 direct labor-hours. The labor rate variance for May is:

Pardoe Inc., manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product: During March, the following activity was recorded by the company: • The company produced 3,000 units during the month. • A total of 8,000 pounds of material were purchased at a cost of $23,000. • There was no beginning inventory of materials on hand to start the month; at the end of the month, 2,000 pounds of material remained in the warehouse. • During March, 1,600 direct labor-hours were worked at a rate of $6.50 per hour. • Variable manufacturing overhead costs during March totaled $1,800. The direct materials purchases variance is computed when the materials are purchased. The labor efficiency variance for March is:

Ortman Corporation makes a product with the following standard costs: The company reported the following results concerning this product in May. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The materials quantity variance for May is:

Novelli Corporation makes a product whose variable overhead standards are based on direct labor-hours. The quantity standard is 0.6 hours per unit. The variable overhead rate standard is $5.00 per hour. In September the company produced 1,600 units using 950 direct labor-hours. The actual variable overhead rate was $5.10 per hour. The variable overhead rate variance for September is:

Which of the following comparisons best isolates the impact that changes in operating efficiency have on performance?

Nicolini Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During October, the kennel budgeted for 2,200 tenant-days, but its actual level of activity was 2,250 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for October: Data used in budgeting: Actual results for October: The administrative expenses in the planning budget for October would be closest to:

Melrose Corporation makes a product that uses a material with the following standards: The company budgeted for production of 5,800 units in September, but actual production was 5,900 units. The company used 50,210 pounds of direct material to produce this output. The company purchased 55,100 pounds of the direct material at $5.80 per pound. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for September is:

Viel Urban Diner is a charity supported by donations that provides free meals to the homeless. The diner's budget for April was based on 3,100 meals, but the diner actually served 3,300 meals. The diner's director has provided the following cost data to use in the budget: groceries, $3.95 per meal; kitchen operations, $5,200 per month plus $1.40 per meal; administrative expenses, $3,300 per month plus $0.80 per meal; and fundraising expenses, $1,800 per month. Required: Prepare the diner's flexible budget for the actual number of meals served in April. The budget will only contain the costs listed above; no revenues will be on the budget.

Cicchetti Corporation uses customers served as its measure of activity. The following report compares the planning budget to the actual operating results for the month of December: Required: Prepare a report showing the company's revenue and spending variances for December. Label each variance as favorable (F) or unfavorable (U).

At Cady Corporation, maintenance is a variable overhead cost that is based on machine-hours. The performance report for June showed that actual maintenance costs totaled $9,600 and that the associated rate variance was $400 unfavorable. If 8,000 machine-hours were actually worked during June, the standard maintenance cost per machine-hour was:

Comparing actual results to a budget based on the actual activity for the period is possible with the use of a:

Shelby Boat Wash's cost formula for its cleaning equipment and supplies is $2,200 per month plus $34 per boat. For the month of September, the company planned for activity of 82 boats, but the actual level of activity was 32 boats. The actual cleaning equipment and supplies for the month was $3,340. The cleaning equipment and supplies in the flexible budget for September would be closest to:

Canevari Corporation makes a product that uses a material with the following standards: The company budgeted for production of 1,300 units in April, but actual production was 1,200 units. The company used 3,750 kilos of direct material to produce this output. The company purchased 4,100 kilos of the direct material at a total cost of $8,610. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for April is:

Mulberry Clinic uses patient-visits as its measure of activity. The clinic bases its budgets on the following information: Revenue should be $48.70 per patient-visit. Personnel expenses should be $27,600 per month plus $14.70 per patient-visit. Medical supplies should be $1,000 per month plus $10.10 per patient-visit. Occupancy expenses should be $9,500 per month plus $2.40 per patient-visit. Administrative expenses should be $3,800 per month plus $0.10 per patient-visit. The clinic reported the following actual results for August: Required: Prepare a report showing the clinic's revenue and spending variances for August. Label each variance as favorable (F) or unfavorable (U).

Tammo Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its budgets on two measures of activity (i.e., cost drivers), namely guests and jeeps. One vehicle used in one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following data in its budgeting: In June, the company budgeted for 430 guests and 172 jeeps. The actual activity for the month was 440 guests and 171 jeeps. Required: Prepare the company's planning budget for June.