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Exam 15: Performance Evaluation

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Question 31

Multiple Choice

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A reporting unit of a decentralized business that controls identifiable revenue and/or expense items is known as a(n) :

A) Management center.
B) Performance center.
C) Accounting center.
D) Responsibility center.

E) None of the above
F) All of the above

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Question 32

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Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units: $\begin{array}{lr}&\text { Per Unit }\\\text { Revenue } & \$ 4.00 \\\text { Variable costs } & \underline{ 1.50} \\\text { Contribution margin } & \$ 2.50 \\\text { Fixed costs }& \underline{ 2.00 }\\\text { Net income } & \underline{ \$ 0.50}\end{array}$ If actual production totals 10,000 units which is within the relevant range, the flexible budget would show fixed costs of:

A) $16,000.
B) $2 per unit.
C) $20,000.
D) None of these answers is correct.

E) A) and C)
F) B) and D)

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Question 33

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Campbell Candy Corporation desires a 16% return on investment (ROI) on all operations. The following information was available for the company for the current year:| $\begin{array}{llr} \text { Sales } &\$250,000\\ \text { Operating income} &\$70,000\\ \text { Turnover } &0.6\end{array}$ What is the corporation's ROI? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Contribution margin would be the most important variable in evaluating the performance of:

Indicate whether each of the following statements is true or false:A responsibility accounting system is useful for controlling operations but not for evaluating the performance of managers.Return on investment is usually calculated by dividing operating income by operating assets.Many businesses use the return on investment of departments and other segments in deciding how to allocate resources within the company.The use of return on investment to allocate resources within an organization is unlikely to motivate segment managers to improve performance.Return on investment for a division should be calculated based on factors the division manager can control.

At the beginning of the period, Cambridge Company estimated that sales would be 10,000 units. Actual sales totaled 14,000 units. The manager was very excited about the unexpected additional income that the extra 4,000 units would produce. Imagine her surprise upon seeing the following report: The company's owner is very upset, charging that the manager did a lousy job of controlling costs.Required:Prepare a performance report that can be used to evaluate the owner's charge that the manager did a poor job of controlling costs. Be sure to label variances as favorable or unfavorable.Is the owner justified in charging the manager with poor cost control? Why or why not?

Indicate whether each of the following statements is true or false.The amount of a sales volume variance is the difference between the static budget and a flexible budget based on actual volume.The sales volume variance measures managers' effectiveness in achieving the planned sales price for the company's products.Marketing managers are usually held responsible for the sales volume variance.If the planned sales volume was 25,000 units and the actual sales volume was 25,500 units, the sales volume variance was favorable.For marketing managers, "making the numbers" refers to reaching the budgeted sales volume.

Terra Company has two divisions, the Retail Division and the Wholesale Division. The following information was gathered for the two divisions for the current year: $\begin{array}{cc} & \text { Retall D1vislon }&\text { Wholesale} \\&&\text { Division}\\\text { Operating income } & \$ 2,500,000 &\$6,000,000\\\text { Operating assets } & \$ 16,000,000&\$36,000,000\end{array}$ Terra Company has set a target return on investment (ROI) of 15% for both divisions Which of the following statements is accurate?

Which manager is generally held responsible for the sales volume variance?

The sales volume variance is favorable if actual sales volume is higher than the budgeted.

Packrall Company makes computer chips. Curtis is manager of the company's maintenance department. Because his maintenance technicians are so well trained in maintaining expensive and sensitive circuit board stamping equipment, Curtis has been authorized to contract to perform maintenance for outside customers. In this company, the maintenance department is likely organized as:

Sales volume variances are attributable to differences between planned and actual activity volumes, as well as differences in selling price.

The sales volume variance is the difference between the:

$\begin{array}{lll}\text { Item to Classify}&\text { Standard }&\text {Actual }\\\text { Sales Revenue } & 820,000 & 835,000 \\\text { Wages } & 125,000 & 128,000 \\\text { S\&A Expenses } & 400,000 & 408,000 \\\text { Cost of Goods Sold } & 608,000 & 600,000\end{array}$ The sales price variance was:

Joseph Company reported the following information for the current year: $\begin{array}{llr} \text {Sales } &\$787,000\\ \text { Average operating assets} &\$375,000\\ \text { Desired ROI } &12\%\\ \text { Residual income } &\$11,250\end{array}$ The company's operating income was:

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

The Landrum Company provides the following standard cost data per unit of product: Variable overhead: $8.00Landrum anticipated that they would produce and sell 24,000 units. During the period, the company produced and sold 25,000 units incurring $210,000 of variable overhead costs. The variable overhead flexible budget variance was:

Fairpoint Products provided the following selected information about its consumer products division for the current year: $\begin{array}{lr}\text { Desired ROI } & 8\% \\\text { Operating income } & \$ 100,000 \\\text { Residual income } & \$ 60,000\end{array}$ Based on this information, the division's investment amount was:

Liam manages a division that is part of a large, decentralized business. He has a substantial degree of control over the division's costs, revenues, and investment in assets. Based on this information, the division would be classified as a profit center.

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