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Exam 15: Performance Evaluation

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Question 81

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Opal Manufacturing Company established the following standard price and cost information: $\begin{array}{lr}\text { Sales price } & \$ 50 \text { per unit } \\\text { Variable manufacturing cost } & \$ 32 \text { per unit } \\\text { Fixed manufacturing cost } & \$ 100,000 \text { total } \\\text { Fixed selling and administrative cost } & \$ 40,000 \text { total }\end{array}$ For the current year, Opal budgeted to manufacture 25,000 units while it actually manufactured 26,500 units. Required:Determine the sales volume variances, including variances for number of units, sales revenue, variable manufacturing cost, fixed manufacturing cost, and fixed selling and administrative cost.Classify the variances as favorable (F) or unfavorable (U).Comment on the usefulness of the variances with respect to performance evaluation.Explain why the fixed cost variances are zero.

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a. and b.

The variances are of little...

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Question 82

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When a comparison of static and flexible budgets shows an unfavorable sales volume variance, the variable cost volume variances will also be unfavorable.

A) True
B) False

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Question 83

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Most large organizations establish responsibility centers (sections, departments, divisions, etc.) in order to delegate decision-making authority to the individuals who are best suited to make decisions in those particular centers. Consider the following responsibility centers:Responsibility Center Description 1. Louisville office of a regional CPA firm 2. Restaurant in a Nordstrom department store 3. Medical diagnostic equipment unit of General Electric 4. Maintenance department in a Toyota assembly plant 5. Cincinnati outlet of the Hampton Inn hotel chain 6. Home electronics division of Best Buy 7. Lawnmower division of Honda 8. Finishing department of a company that makes wooden fencing 9. Engine assembly department of John Deere 10. Customer service department of United Airlines 11. Check processing department of Citibank 12. Casting department of a small steel mill 13. Jeep division of Chrysler Motors 14. Denver location of Barnes and Noble 15. Baltimore office of an investment banking firmRequired:Three commonly found responsibility centers are cost centers, profit centers, and investment centers. Describe each type of center.Which type of center will each most likely be classified as: a cost center, profit center, or investment center?

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

Spark Company's static budget is based on a planned activity level of 57,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 52,000 units and one based on 62,000. The company actually produced and sold 61,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets?

A cost variance is unfavorable if actual cost exceeds standard cost.

Joseph Company has an investment in assets of $450,000, operating income that is 10% of sales, and an ROI of 18%. From this information the amount of operating income would be:

If Pascal Company's turnover (asset utilization) measure is 2.5 and its margin is 7.5%, its ROI is 18.75%.

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 total variable cost volume variance?

Howard Company provided the following selected information about its consumer products division for the current year: $\begin{array}{lr}\text { Desired ROI } & 12\% \\\text { Operating income } & \$ 150,000 \\\text { Residual income } & \$ 30,000\end{array}$ Based on this information, the division's investment amount was:

A budget prepared at a single volume of activity is referred to as a:

Which of the following statements is incorrect?

Which of the following is an incorrect statement regarding variances?

Carver Company's balance sheet and income statement are provided below: Required:Compute the margin, turnover, and return on investment for Carver Company.

Which of the following statements regarding profit centers is correct?

Vanessa Grant is responsible for controlling expenses, but is not responsible for generating revenues. Vanessa Grant is a manager of a(n) :

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.

The Water Management Company has two operating divisions, the Service Division and the Irrigation Division. The company evaluates the performance of its divisions using the return on investment (ROI) measure. The following information pertains to the two divisions as of the end of the current year. The average service fee was $50.00 per unit for the Service Division, while the average selling price of an irrigation system was $5,000 for the Irrigation Division. The company requires a minimum return on investment of 12%. Required:Compute the return on investment (ROI) measure for both divisions and the company as a whole. Based on ROI alone which division had the better performance? (Round ROI measures to the nearest whole percent.)

Howard Company provided the following selected information about its consumer products division for the current year: $\begin{array}{lr}\text { Desired ROI } & 12\% \\\text { Operating income } & \$ 204,800 \\\text { Residual income } & \$ 64,800\end{array}$ Based on this information, the division's investment amount was:

Which of the following statements regarding investment centers is incorrect?