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Exam 8: Performance Evaluation

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Question 51

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Which manager is usually held responsible for labor price variances?

A) Sales manager
B) Purchasing agent
C) Marketing manager
D) Production supervisor

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

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Question 52

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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) None of the above
F) A) and B)

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Question 53

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Sometimes the sales staff will deliberately underestimate the amount of expected sales. This practice is known as:

The sales volume variance is the difference between sales revenue on the static budget and sales revenue on the flexible budget.

Select the correct statement regarding general, selling, and administrative (GS&A) costs.

The sales volume variance was: $\begin{array}{ccc}\text { Item to Classify }&\text {Standard}&\text { Actual }\\\text { Sales volume } & 100.000 \text { units } & 96.000 \text { units } \\\text { Sales price } & \$ 4 \text { per unit } & \$ 3.90 \text { per unit } \\\text { Materials usage } & 40,000 \text { gallons } & 42.000 \text { gallons } \\\text { Labor price } & 12.50 \text { per Hour } & 12.45 \text { per hour }\end{array}$

The differences between the standard and actual amounts are called variances.

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00. Actual sales for April were 149,000 units and average selling price was $6.12.The sales volume variance was:

How do differences between planned and actual volume impact companies that use a cost plus pricing strategy?

Stafford Company prepared a static budget for a production and sales volume of 10,000 units.What is net income if 9,000 units are sold? $\begin{array}{|l|l|ll|}\hline & & & \text { Static Budget } \\\hline \text { Number of units } & & \text { \$ } & 10,000 \\\hline & \begin{array}{l}\text { Per unit } \\\text { standards }\end{array} & & \\\hline \text { Sales revenue } & \$ \quad 65.00 & \$ & 650,000 \\\hline \text { Variable manufacturing costs: } & & & \\\hline \text { Materials } & \$ 11.00 & 110,000 \\\hline \text { Labor } & \$ 9.00 & 90,000 \\\hline \text { Overhead } & \$ 4.20 & 42,000 \\\hline \begin{array}{l}\text { Variable general, selling, and } \\\text { administrative costs }\end{array} & \$ \quad 11.00 & 110,000 \\\hline \text { Contribution margin } && \$ 298,000 \\\hline \text { Fixed costs } & & \\\hline \text { Manufacturing overhead } & & 100,800 \\\hline \begin{array}{l}\text { General, selling, and administrative } \\\text { costs }\end{array} & & 45,000\\\hline \text { Net income } & & \$152,200 \\\hline\end{array}$

Indicate whether each of the following statements is true or false.A favorable variance may indicate the existence of unfavorable conditions.Managers should be praised or punished based on variances.Budget slack exists when performance standards are set at an ideal, unachievable level.Establishing standards is the least difficult aspect of using a standard cost system.A standard is the amount a price, cost, or quantity should be.

When would a sales variance be listed as favorable?

When would a variance be labeled as favorable?

Indicate whether each of the following statements is true or false.In deciding whether to investigate a variance, managers should consider the materiality, but not the type or direction of the variance.A material variance is one that will influence stockholders' investment decisions.The primary advantage of a standard cost system is controlling costs efficiently.Ideal standards will likely lead to variances that need not be investigated because they are not the result from abnormalities.Even a well-established and maintained standard cost system is likely to damage employee morale.

Dandridge Company established a direct materials standard of 4 pounds at $4.50 per pound for one of its products. During April, Dandridge produced 22,000 units of the product, using 86,000 pounds of material.Required: Based on this information, (a) Which variance can you calculate? (b) What is the dollar amount of the variance? (c) Is the variance favorable or unfavorable? (d) Do you consider the variance to be sufficiently material that managers should investigate to discover the cause of the variance?

In most cases, the production manager should be held accountable for fixed cost volume variances.

In general, budget variances should not be used to single out managers for praise or punishment.

Which of the following is an incorrect statement regarding variances?

The accountant for Dalton Company prepared the following performance report: Required: 1) Compute the sales volume variance in units.2) Compute the percentage increase in revenue generated by the increase in activity.3) Compute the percentage increase in budgeted profitability that resulted from the increase in revenue. Explain this result.4) How would differences between planned and actual volume impact companies that use a cost-plus pricing strategy?

Baker charges its customers $60 per hour. The chief operating officer expected that the company would provide 40,000 hours of service to clients. However, the vice president for marketing argues that the actual number of hours may range from 36,000 to 44,000 hours. Baker's standard variable cost is $32.50 per hour, and its standard fixed cost is $750,000.Required: Prepare flexible budgets for 36,000, 40,000, and 44,000 hours.