Deck 13: Performance Evaluation for Managers

Question 1

The biggest problem with allocating indirect expenses to segments is that:

A)Allocations can be somewhat arbitrary and the results can vary widely
B)Some departments consume more indirect expenses
C)Fixed costs are ignored
D)It is a time-consuming exercise

Answer 1

A

Question 2

The fixed budget performance report of Discount Sale Pty Ltd for the year ended 30 June 2011 shows budgeted manufacturing costs of $420 000 and actual manufacturing costs of $370 000.The favourable variance of $50 000 must have been due to:

A)Cost factors
B)Poor budgeting
C)Lack of supervision of workers
D)Cannot be determined from the information provided

Answer 2

D

Question 3

The item,department or job for which costs are accumulated is called a:

A)Cost object
B)Responsibility centre
C)Business
D)Balanced scorecard

Answer 3

A

Question 4

Which of these departments would not be considered a service department for a tyre retailer?

A)Personnel
B)Accounting
C)Workshop
D)Reception

Question 5

Management by exception means:

A)Rewarding exceptional staff
B)Only investigating variances that differ significantly from plan
C)Delegating responsibility
D)Motivating staff to achieve targets

Question 6

Which of these statements is not true? A responsibility accounting system:

A)Recognises that expenses are the collective responsibility of the organisation
B)Requires managers to participate in the development of financial plans for their unit
C)Measures separately the performance of each manager's area of responsible
D)Holds managers responsible for costs and income over which they have control

Question 7

Y Co allocates advertising expenses to its two departments,A and B,on the basis of sales.For the current year the sales for department A are $200,000 and for department B $800,000 and total advertising expenses are $16,800.The amount allocated to the two departments is:

A)A $8,400: B $8,400
B)A $4,200: B $12,600
C)A 2,400: B $14,400
D)A $3,360: B $13,440

Question 8

The statement that is not true is:

A)Performance reports normally report standard costs and variances
B)Performance reports should contain space for explanations of variances
C)Performance reports should be tailored to the responsibilities of the manager or department for which they are prepared
D)Performance reports do not present the causes of variances

Question 9

A flexible is a budget where:

A)The budget estimates are prepared for a range of activities
B)Fixed costs are not included
C)The estimates are amended if they are not attained in the period
D)Preparation may be postponed if the entity is very busy or is short staffed

Question 10

The Corporation has three departments,Widgets,Ridgets and Digits.At the end of the accounting period the following information is available. $\begin{array}{|l|r|r|r|r|}\hline & \text { Widgets } & \text { Ridgets } & \text { Digits } & \text { Total } \\\hline \text { Net Sales } & \$ 5000 & \$ 9000 & \$ 6000 & \$ 20000 \\\hline \text { Cost of sales }& \underline{3000} & \underline{400} & \underline{2400} & \underline{900} \\\hline \text { Gross Profit }&\$ 2000 & 4500 & \$ 3600 & \$ 10100 \\\hline \text { Direct Operating Exps }&\underline{500} & \underline{1000} & \underline{1500} & {3000} \\\hline \text { Departmental Margin }&1500 & \$ 3500 & \$ 2100 & \$ 7100 \\\hline \text { Indirect Operating Exps }&& & & \underline{3000} \\\hline \text { Profit }&& & & \$ 4100 \\\hline \end{array}$ The Corporation is considering eliminating the Widgets department.What will be the change in The Corporation's profit if the Widgets department is eliminated? Assume that all indirect expenses are unavoidable and that all other circumstances are held constant.

A)$500 fall
B)$1500 fall
C)$1000 fall
D)$1500 increase

Question 11

Department A has a gross profit of $20,000,direct departmental expenses of $6,400 and allocated expenses of $19,000 giving a net loss of $5,400.What would be the effect on the total organisation's profit if Department A was closed?

A)Profits would increase by $5,400
B)Profits would decrease $13,600
C)Profits would increase by $20,000
D)Profits would decrease by $20,000

Question 12

In a decision relating to the possible elimination of a department consideration needs to be given to all of the following except:

A)Alternative uses of the space currently occupied
B)Adverse effects of the elimination on sales of other departments
C)Whether all of the direct operating expenses are avoidable
D)Unavoidable expenses

Question 13

Redoing the budget to actual output is most useful:

A)For planning purposes
B)When actual output equals budgeted output
C)As a tool to help evaluate performance
D)To calculate profitability accurately

Question 14

Mayfield Retailers has departments A and B with departmental income statements as follows: $\begin{array}{|l|r|r|}\hline & \text { Department A } & \text { Department B } \\\hline \text { Net sales } & \$ 70000 & \$ 50000 \\\hline \text { Cost of sales } & 30000 & 20000 \\\hline \text { Other Expenses } & 13000 & 31000 \\\hline \text { Profit (Loss) } & \$ 27000 & (\$ 1000) \\\hline\end{array}$ Mayfield is considering eliminating Department B.Of the total 'other expenses' for the two departments of $44 000,$32 000 are fixed general overhead expenses and the rest are variable expenses based on 10% of sales.It is estimated that the elimination of Department B will cause a 10% decrease in the sales of Department A.What will be the profit or loss of Department A after the elimination of Department B?

A)$16,700 profit
B)$3,000 profit
C)$6,000 loss
D)$2,300 loss

Question 15

A responsibility centre that is held accountable for controlling both costs and income is called a:

A)Cost centre
B)Investment centre
C)Department
D)Profit centre

Question 16

Broadway Store is considering closing down one of its low-profit departments.Assume that discontinuance of this department will not affect sales of the remaining departments.Which of the cost classifications below should be compared with departmental income to determine whether or not to close the department?

A)Variable costs
B)Direct costs
C)Controllable costs
D)Avoidable costs

Question 17

Which accounting report is most commonly prepared for departmental reporting?

A)Balance sheet
B)Income statement
C)Cash flow statement
D)Manufacturing statement

Question 18

Which of these factors is the least controllable by the department manager and therefore not his/her main focus of attention?

A)Number of units sold
B)Selling prices
C)Mix of products sold
D)Indirect operating expenses

Question 19

A basis for the allocation of delivery expenses to other departments which results in an answer that is not an estimate is:

A)Number of deliveries
B)Sales volume
C)Cubic volume of deliveries
D)The allocation of indirect expenses is always an estimate no matter which method is used

Question 20

Mayfield Retailers has departments A and B with departmental income statements as follows: $\begin{array}{|l|r|r|}\hline & \text { Department A } & \text { Department B } \\\hline \text { Net sales } & \$ 70000 & \$ 50000 \\\hline \text { Cost of sales } & 30000 & 20000 \\\hline \text { Other Expenses } & 13000 & 31000 \\\hline \text { Profit (Loss) } & \$ 27000 & (\$ 1000) \\\hline\end{array}$ Mayfield is considering eliminating Department B.Of the total 'other expenses' for the two departments of $44 000,$32 000 are fixed general overhead expenses and the rest are variable expenses based on 10% of sales.What is the present departmental contribution of Department B?

A)$25 000
B)$1000
C)$58 000
D)$30 000

Question 21

Costs that a manager can influence in the short term are called:

A)direct costs
B)traceable costs
C)controllable costs
D)departmental costs

Question 22

The true statement concerning the allocation of indirect expenses to departments is:

A)Accountants have developed methods that have completely removed the subjectivity in allocating indirect costs to departments
B)A departmental profit calculation should exclude expenses that the departmental manager has no control over
C)When preparing departmental profit reports it is best to assume that the departments are independent businesses
D)Different accountants will normally chose similar bases to allocate overhead costs to departments

Question 23

These were Lakeview Company's budgeted production costs for the current year at an expected output of 20 000 units: $$\begin{array} { l l } \text { Direct labour } & \$ 13 \text { per unit } \\\text { Direct materials } & \$ 7 \text { per unit } \\\text { Variable overhead } & \$ 5 \text { per unit } \\\text { Fixed ov erhead } & \$ 30000\end{array}$$ Assume Lakeview uses a flexible budgeting system and actually produced 22 000 units at a total cost of $560 000.By how much did actual production cost differ from the flexible budget amount and in which direction?

A)Actual cost was $10 000 over flexible budget
B)Actual cost was $20 000 under flexible budget
C)Actual cost was $20 000 over flexible budget
D)Actual cost was $40 000 under flexible budget

Question 24

The statement relating to standard costs that is not true is:

A)They are predetermined costs
B)They serve as benchmarks against which actual performance can be evaluated
C)The approach is not suitable for a service business
D)An unfavourable variance occurs when actual costs exceed standard costs

Question 25

Hot Chilli produces a range of women's swimsuits.During October,the company's records revealed the following information about production of the swimsuits.
$\begin{array}{ll}\text { Standards: }\\\text { Direct materials } & 4 \text { metres @ \$2.50 per metre } \\\text { Direct labour } & 1.5 \text { hours @ \$9.00 per hour }\\\text { Manufacturing overhead }\\\text { Variable } & \$ 5.00 \text { per direct labour hour } \\\text { Fixed } & \$ 5.50 \text { per direct labour hour }\end{array}$
Compute the standard unit cost for a swimsuit.

A)$39.25
B)$42.25
C)$33.50
D)$43.65

Question 26

The method not employed in the establishment of standard costs is:

A)Analysis of historical performance data
B)Time and motion studies
C)Management judgement concerning future operating conditions
D)Discounted cash flow analysis

Question 27

Based on an expected production level of 30 000 units Magnolia Manufacturing's cost $$\begin{array}{l}\text { 1. estimates are: }\\\begin{array} { l l } \text { Direct labour } & \$ 20 \text { per unit } \\\text { Direct materials } & \$ 15 \text { per unit } \\\text { Variable overhead } & \$ 12 \text { per unit } \\\text { Fixed overhead } & \$ 150000\end{array}\end{array}$$ If 33 000 units are actually produced during the period the flexible budget's total production cost is:

A)$1 716 000
B)$1 701 000
C)$1 575 000
D)$1 560 000

Question 28

The departmental c___________ is the income of the department less its direct expenses.

Question 29

R__________________ accounting encompasses the accounting procedures used to evaluate the financial performance of responsibility centres.

Question 30

How many of the following could not be cost objects?
.A product
.A specialised item of equipment
.An activity
.A department

A)0
B)1
C)2
D)3

Question 31

The Apia Vineyard uses a special mix of compost to fortify the soil around the vines.The price standard used is $3.50 per sack of compost.During the year,the purchase price averaged $3.65 per sack.The vineyard purchased and used 1,560 sacks of compost during the year.Compute the direct materials price variance indicating whether it is favourable or unfavourable.

A)$266 F
B)$245 U
C)$227 U
D)$234 U

Question 32

The balanced scorecard approach requires the organisation to be viewed from four perspectives,which is not one of those perspectives?

A)Supplier
B)Financial performance
C)Customer
D)Internal business processes

Question 33

How many of these are considered to be benefits of standard costing?
? It makes employees more aware of the impact of costs on operations
? It serves as a target against which to evaluate performance
? It is a cheap way of valuing inventory
? It eliminates the need to compute variances

A)One
B)Two
C)Three
D)Four

Question 34

A v_____________ is the difference between expected and actual results.

Question 35

The true statement is:

A)The limitation of actual costs is that they represent what happened not necessarily what should have happened
B)Standard costs are the costs necessary to produce an average or standard product
C)Standard costs can serve as benchmarks against which budgeted performance is measured
D)Standard costs can only be used for analytical purposes and can never be incorporated into the formal accounting system.

Question 36

Compute the correct variances: Budgeted sales $110,000: Actual sales $118,000.Actual direct labour $40,000: Budgeted direct labour $42,000.

A)Sales variance $8,000 F: Direct labour variance $2,000 F
B)Sales variance $8,000 F: Direct labour variance $2,000 U
C)Sales variance $8,000 U: Direct labour variance $2,000 F
D)Sales variance $6,000 U: Direct labour variance $4,000 U

Question 37

If the actual quantity of direct materials used equals the budgeted quantity of direct materials that should have been used,any difference between the budgeted total cost and the actual total cost of direct materials used must be due to a:

A)Materials quantity variance
B)Materials efficiency variance
C)Overhead variance
D)Materials price variance

Question 38

The performance standard usually considered best in setting standard costs is?

A)Historical
B)Attainable
C)Average
D)Ideal

Question 39

Ten minutes of direct labour is needed to produce one unit of product and direct labour is paid $24 per hour.Budgeted output for the period is estimated to be 8,000 units.Actual output for the period turns out to be 8,500 units and actual labour costs are $36,200 What budgeted direct labour amount should actual direct labour costs be compared to in order to calculate a valid variance?

A)$32,000
B)$19,200
C)$20,400
D)$34,000

Question 40

In a manufacturing firm the personnel department,the accounting department and the advertising department are all examples of s_____________ departments.

Question 41

A series of budgets produced for different levels of activity are known as f_______________ budgets.

Question 42

An income statement is prepared in segment reporting but a b___________ s__________ is typically not prepared.

Question 43

S____________ costs are carefully predetermined costs of how much it should cost to produce a product or perform a service.

Question 44

A____________________ standards are preferred because they represent targets that can be achieved with a reasonable efficient effort.

Question 45

A measurement-based management system which aligns business activities with the vision and strategies of the organisation and which uses measures to monitor performance in achieving these strategies over time is known as the b_______________ _________________.

Question 46

________________ by ______________ is the monitoring of management performance by concentrating on results that deviate significantly from planned results.