Question 1

The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{ll}
\text { Revenues } & \$ 800,000 \
\text { Operating expenses } & \$  656,000 \
\text { Operating income } & \$ 144,000 \
\text { Operating assets } & \text { \$ } 1,200,000
\end{array}$ Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division. The Electronic Division's return on investment is:

Accepted Answer

A)  11.25%. 
B)  12%. 
C)  66.7%. 
D)  18%.

Question 2

Which of the following income statement formats is most commonly used with flexible budgeting?

Accepted Answer

A)  Sales − Variable costs = Contribution margin; Contribution margin − Fixed costs = Net income 
B)  Sales − Cost of goods sold = Gross margin; Gross margin − Operating expenses = Net income 
C)  Sales − Manufacturing costs − Selling and administrative costs = Net income 
D)  None of these answers is correct.

Question 3

Huang Company reported the following information for the current year: $\begin{array}{lr}
\text { Sales } & \$ 400,000 \
\text { Average operating assets } & \$ 250,000\
\text { Margin }&10\%
\end{array}$ The company's return on investment was: (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Accepted Answer

A)  10.00%. 
B)  6.25%. 
C)  16.00%. 
D)  Cannot be ascertained from the information provided.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

In responsibility accounting systems, managers are only held responsible for items over which they have absolute control.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  making the numbers. 
B)  lowballing. 
C)  cooking the books. 
D)  budget slack.

Question 7

Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually made and sold 13,000 units.  What was the sales volume variance?

Accepted Answer

A)  $65,000 favorable 
B)  $65,000 unfavorable 
C)  $29,800 unfavorable 
D)  $29,800 favorable

Question 8

The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{ll}
\text { Revenues } & \$ 481,000 \
\text { Operating expenses } & \$ 432,000 \
\text { Operating income } & \$ 49,000 \
\text { Operating assets } & \$ 590,000
\end{array}$ Anton Company has set a target return on investment (ROI) of 10% for the Electronics Division. The Electronic Division's return on investment is:

Accepted Answer

A)  11.34%. 
B)  8.31%. 
C)  10.19%. 
D)  10.00%.

Question 9

Which of the following statements about residual income is true?

Accepted Answer

A)  Residual income = Operating Income − Sales 
B)  Residual income = Operating Income − Operating Assets 
C)  Residual income is the amount of income in excess of a target or desired return on investment 
D)  None of these.

Question 10

An investment center of Lannigan Company reported operating income of $330,000 on total operating assets of $2,600,000 during the current year. The company has established a target ROI of 13% for the investment center. Last year, the investment center's ROI was 12.2%.Required:Calculate the return on investment for the investment center for the current year. Compare its performance with both the performance from the previous year and the target ROI.

Accepted Answer

The answer of An investment center of Lannigan Company reported...

Question 11

Investment centers are often evaluated on the basis of return on investment.

Accepted Answer

A) True 
 B)False

Question 12

Perfect Products provided the following selected information about its consumer products division for the current year:
 $\begin{array}{llr}
  \text {Desired ROI  } &14\%\
 \text {Net income  } &\$220,000\
 \text { Residual income } &\$15,000
\end{array}$
 Required:Based on this information, calculate the company's investment amount. Round your answer to the nearest dollar.

Accepted Answer

The answer of Perfect Products provided the following selected information...

Question 13

The concept that says managers should be evaluated on the basis of revenues and/or expenses they can control is known as the:

Accepted Answer

A)  Management by exception concept. 
B)  Controllability concept. 
C)  Responsibility concept. 
D)  None of these.

Question 14

The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units and average selling price was $5.95. The sales volume variance was:

Accepted Answer

A)  $30,000 favorable. 
B)  $30,000 unfavorable. 
C)  $29,750 favorable. 
D)  $29,750 unfavorable.

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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: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.Which column contains sales volume variances and which column contains flexible budget variances?Comment on this company's performance.

Accepted Answer

The answer of The Vermont Company has requested a performance...

Question 17

When the manager's evaluation is based on residual income, the manager should accept a project if the residual income is:

Accepted Answer

A)  positive. 
B)  negative. 
C)  equal to the ROI. 
D)  greater than net income.

Question 18

Indicate whether each of the following statements is true or false.Return on investment often is used to evaluate cost centers within a company.Return on investment measures a manager's ability to maximize earnings above a target level.To calculate residual income, a company must first set a target or desired return on investment.Residual income is stated as a dollar amount.Suboptimization occurs when a departmental or division manager seeks maximize benefit for the company as a whole at the expense of his or her own best interest.

Accepted Answer

The answer of Indicate whether each of the following statements...

Question 19

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units and average selling price was $6.12. The sales price variance was:

Accepted Answer

A)  $6,120 favorable. 
B)  $6,000 unfavorable. 
C)  $17,880 favorable. 
D)  $17,880 unfavorable.

Question 20

Under all circumstances, unfavorable variances are bad; favorable variances are good.

Accepted Answer

A) True 
 B)False

Exam 15: Performance Evaluation

Which of the following income statement formats is most commonly used with flexible budgeting?

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

In responsibility accounting systems, managers are only held responsible for items over which they have absolute control.

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

Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually made and sold 13,000 units. What was the sales volume variance?

Which of the following statements about residual income is true?

Investment centers are often evaluated on the basis of return on investment.

The concept that says managers should be evaluated on the basis of revenues and/or expenses they can control is known as the:

The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00. Actual sales for October were 105,000 units and average selling price was $5.95. The sales volume variance was:

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.

When the manager's evaluation is based on residual income, the manager should accept a project if the residual income is:

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units and average selling price was $6.12. The sales price variance was:

Under all circumstances, unfavorable variances are bad; favorable variances are good.