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Exam 15: Performance Evaluation

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Question 21

Multiple Choice

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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: 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 B)
F) All of the above

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Question 22

True/False

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An important disadvantage of decentralization is that managers may engage in suboptimal behavior.

A) True
B) False

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Question 23

Multiple Choice

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When using residual income as a project-screening tool, management should accept a project if the residual income is:

Select the correct statement regarding flexible budgets.

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

Clear lines of authority and responsibility are essential to establishing a responsibility accounting system.

Select the incorrect statement regarding flexible budgets.

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

In an optimal responsibility accounting system, managers are evaluated on only the revenues and costs that are under their control.

When would a variance be labeled as favorable?

The general formula for return on investment is revenue divided by investment in assets.

A restaurant that is part of a retail store and managed by the retail manager would most likely be classified as a cost center.

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

An organizational unit of a business that incurs costs and generates revenues is known as a(n) :

Which of the following statements about residual income is true?

Brookings Company evaluates its managers on the basis of return on investment. Division Three has a return on investment (ROI) of 15% while the company as a whole has an ROI of only 10%. Which of the following performance measures will motivate the manager of Division Three to accept a project earning a 12% return?

An investment opportunity with a residual income that equals or exceeds the company's required rate of return should be accepted.

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: Terra Company has set a target return on investment (ROI) of 15% for both divisions. Based on ROI, which division appears to have performed better?

The following standard cost card is provided for Navid Company's Product A: The fixed overhead rate is based on total budgeted fixed overhead of $12,000. During the period, the company produced and sold 5,800 units at the following costs: Direct material 12,200 pounds @ $4.80 per pound Direct labor 5,950 hours @ $8.00 per hour Overhead $29,920 The standard manufacturing cost per unit is $23.00. What is the actual manufacturing cost per unit? (Do not round intermediate calculations.)

Which of the following is not typically found in a decentralized organization?