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Exam 8: Performance Evaluation

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Question 31

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What should be the organizational purpose for identifying and calculating variances?

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The purpose of identif...

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Question 32

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

A) Strategic budget.
B) Standard budget.
C) Static budget.
D) Flexible budget.

E) All of the above
F) A) and D)

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Question 33

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What is the result when the quantity of materials used is less than the standard quantity?

The Wentworth Company,estimating its sales to be 40,000 units for the upcoming period,prepared the following static budget: $\begin{array}{l}\begin{array}{|l|}\hline \text { Units:}\\\hline \text {Sales}\\\hline \text {Less variable costs:}\\\hline \text {Manufacturing costs}\\\hline \text {Selling and administrative costs}\\\hline \text {Contribution margin}\\\hline \text {Less fixed costs:}\\\hline \text {Manufacturing costs}\\\hline \text {Selling and administrative costs}\\\hline \text { Net income}\\\hline \end{array}\begin{array}{ll|}\hline & 40,000 \\\hline \$ & 400,000\\\hline\\\hline & 140,000 \\\hline & \underline {80,000} \\\hline \$ & 180,000 \\\hline\\\hline & 44,000 \\\hline & \underline {34,000} \\\hline \$ & 102,000\\\hline\end{array}\end{array}$ 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 total sales variance includes both price and volume variances.

Distinguish between static and flexible budgets.Give an example of how flexible budgets can be used.

Select the term that best fits the definition or description;enter the number of the term in the column for Your Answer. $\begin{array}{|l|l|l|} \hline \text { Your Answer} &\text { Definition or Description }&\text {Term} \\\hline &\text {A. Differences between budgets based on standard amownts a the actual level of activity and actual resuls } &\text { 1. Budget slack }\\\hline &\text {B. The difference between ifflated and realistic standards } &\text { 2. Cost per nuit of imput }\\\hline &\text { C. A variance occuring in a standard cost accotuting system when the actual amount or quantiy of direct labor used differs from the standard amount required } &\text { 3. Favorable variance }\\\hline &\text {D. The per unt price or coet that "should be" based on a certain set of anticipated circumstances } &\text { 4. Fexible budget vaniances }\\\hline &\text {E. Standard representing the highest level of efficiency attainable based on all inpui factors interacting perfectly muder ideal or optimun conditions } &\text {5. Ideal standard }\\\hline &\text { F. A variance that occus when actual prices paid for raw materials differs from the standard prices } &\text {6. Labor usage variance }\\\hline &\text { G. The difference between sales based on a static budget (standard sales price times standard level of activity) and sall based on a flexible budget (standard sales price times actual level of activity) } &\text { 7. Labor price variance }\\\hline &\text { H. A variance that occuss when the actual pay rate differs from the sandard pay rate for direct labor } &\text {8. Materials price variance }\\\hline &\text {I. A variance that occurs when the actual costs are less than standard costs or when actual sales are greater than standard sales} &\text {9. Materials usage variance }\\\hline &\text {J. A variance that occurs when the actual amounts of raw materials used to produce a good differ from the standard amounts required to prochice that good } &\text {10. Sales volume variance }\\\hline &\text {K . Budgets based solely on the planned level of activity and that remain constant even when vohme of activity changes} &\text { 11. Standards }\\\hline &\text {L. The cost of one wit of materinl labor, or overhead } &\text { 12. Static budgets }\\\hline\end{array}$ CHANGE NEEDs TO BE MADE TO TABLE Given that exact wording is not in chapter,change term 2 to: Cost per unit

Which manager is usually held responsible for materials usage variances?

When would a sales price variance be listed as unfavorable?

Which of the following applications is most suited for developing flexible budgets?

Select the incorrect statement concerning the human factor of performance evaluation.

Timberlake Company planned for a production and sales volume of 12,000 units.However,the company actually makes and sells 13,000 units. $\begin{array}{l}\begin{array}{|l|}\hline\\\hline \text { Number of units }\\\hline \text { }\\\hline \text { Sales revenue }\\\hline \text { Variable manufacturing costs: }\\\hline \text { Materials }\\\hline \text { Labor }\\\hline \text { Overhead }\\\hline \text { Variable G,S\&A }\\\hline \text { Contribution margin }\\\hline \text { Fixed costs }\\\hline \text { Manufacturing overhead }\\\hline \text { G,S\&A }\\\hline \text { Net income }\\\hline\end{array}\begin{array}{l|}\hline \\\hline \\ \hline \text { Per unit standards}\\\hline \$ 65.00 \\\hline \\\hline\$ 11.00 \\\hline\$ 9.00 \\\hline\$ 4.20 \\\hline\$ 11.00 \\ \hline \\\hline \\\hline \\\hline \\\hline \\\hline\end{array}\begin{array}{l|}\hline \text {Static Budget}\\\hline12,000\\\hline\\\hline \$ 780,000 \\\hline\\\hline 132,000 \\\hline 108,000 \\ \hline50,400 \\\hline \underline {132,000} \\\hline \$ 357,600 \\\hline\\\hline 100,800 \\\hline \underline {45,000} \\\hline \$ 211,800\\\hline\end{array}\begin{array}{l|}\hline \text { Flexible Budget}\\\hline 13,000\\\hline\\\hline \$ 845,000 \\\hline\\\hline 143,000 \\\hline 117,000 \\\hline 54,600 \\\hline \underline {143,000} \\\hline \$ 387,400 \\\hline\\\hline 100,800 \\\hline \underline {45,000 }\\\hline \$ 241,600\\\hline\end{array}\end{array}$ What was the total variable cost volume variance?

A difference between the static budget based on planned volume and a flexible budget prepared at actual volume is called a:

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 revenue flexible budget variance was:

Select the term that best fits the definition or description;enter the number of the term in the column for Your Answer. $\begin{array}{|l|l|l|} \hline \text { Your Answer } & \text { Definition or Descuiption } &\text { Term } \\\hline & \text {A. The difference between actual sales in dollars and the standard sales price per unit times the actual level of activity } &\text {1. Economies of scale } \\\hline & \text { B. A variance that occuss when the amount of applied overhead differs from the actual overhead costs } &\text {2. Flexible budgets } \\\hline & \text {C. Budgets that show expected revenues and costs for muliple levels of activity } &\text {3. Lax standards } \\\hline & \text {D. Differences between standard and actual amounts } &\text {4. Making the mubers } \\\hline & \text {E. The lower unit cost advantage possible for companies with high fixed costs when volume increases } &\text {5. Management by exception } \\\hline & \text {F. Standard representing a level of performance attainable wit reasomable effort } &\text {6. Practical standard } \\\hline & \text {G. Marketing managers attaining the sales vohune indicated in the master budget } &\text {7. Sales price variance } \\\hline & \text {H. Easily attainable goals that can be accomplished with minnal effort } &\text {8. Total ovenhead vanance } \\\hline & \text {I. The use of management resources in areas that are not performing in accordance with expectations } &\text {9. Unfavorable variance } \\\hline & \text { J. A variance that occurs when actual costs exceed standard costs or when actual sales are less than standard sales } &\text {10. Variances } \\\hline\end{array}$ First set of changes are due to wording in text ("…Melrose has a fixed cost volume variance of $16,200 ($307,800 budgeted fixed cost − $291,600 applied fixed cost)"

White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units.During the year,the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost volume variance is:

Which of the following is a difference between a static and a flexible budget?

Indicate whether each of the following statements is

Assuming actual volume is 10,000 units and planned volume is 12,000 units,the sales volume variance in units:

The purchasing department is considered to have primary responsibility for the materials usage variance.