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Exam 8: Performance Evaluation

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Question 1

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Monroe Corporation budgeted fixed costs of $250,000 for the current year.The company expected to make 20,000 units during the year.Actual fixed costs were $256,000,and Monroe actually made 22,000 units of product. Required: (a)Calculate the fixed cost spending variance and indicate whether it is favorable or unfavorable. (b)Calculate the fixed cost volume variance and indicate whether it is favorable or unfavorable.Explain why the variance is favorable or unfavorable.

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(a)Fixed cost spending variance,$256,000...

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Lax standards make allowances for normal material waste and spoilage.

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Question 3

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All of the following factors should influence the decision to investigate a variance except:

Shia Company makes a product that is expected to require 2 hours of labor per unit of product.The standard cost of labor is $5.20.Shia actually used 2.1 hours of labor per unit of product.The actual cost of labor was $5.30 per hour.Shia made 1,000 units of product during the period.Based on this information alone,the labor price variance is:

Which of the following factors should be considered in establishing standards for use with a standard costing system?

Which of the following equations can be used to compute the total materials variance? (A = Actual;S = Standard;Q = Quantity;P = Price)

Select the correct statement regarding flexible budgets.

Spark Company's static budget is based on a planned activity level of 45,000 units.At the same time the static budget was prepared,the management accountant prepared two additional budgets,one based on 40,000 units and one based on 50,000.The company actually produced and sold 49,000 units.In evaluating its performance,management should compare the company's actual revenues and costs to which of the following budgets?

If the master budget prepared at a volume level of 20,000 units includes factory rent of $40,000,a flexible budget based on a volume of 21,000 units would include factory rent of $40,000.

The Vermont Company has requested a performance report that reports both sales activity variances and flexible budget variances.The following table of information is provided: $\begin{array}{c}\begin{array}{|l|}\hline \text { Column (1)} \\ \hline \\\hline \\\hline \text {Number of units}\\\hline \\\hline \text {Sales}\\\hline \text {Less variable costs:}\\\hline \text {Materials}\\\hline \text {Labor}\\\hline \text {Overhead}\\\hline \text {Selling and admin.}\\\hline \text {Contrileution margin}\\\hline \text {Less fixed costs:}\\\hline \text {Mannactuing}\\\hline \text {Selling and admin.}\\\hline \text {Net income}\\\hline \end{array}\begin{array}{c|}\hline \text {(2)}\\\hline \text { Static } \\ \hline \text { Budget } \\ \hline 16,200 \\\hline \\\hline \$ 430,000\\\hline \\\hline 102,200 \\ \hline 86,000 \\ \hline 51,600 \\ \hline 34,400 \\ \hline \$ \quad 155,800 \\ \hline\\\hline 36,000 \\\hline 74,000 \\\hline\$ \quad 45,800 \\\hline\end{array}\begin{array}{c|}\hline \text {(3)}\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\end{array}\begin{array}{c|}\hline \text {(4)}\\\hline \text { F/U}\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\end{array}\begin{array}{c|}\hline \text {(5)}\\\hline \text { Flexible } \\ \hline \text { Budget } \\ \hline 18,000 \\\hline \\\hline \$ 450,000\\\hline \\\hline 108,000 \\ \hline90,000 \\ \hline 54,000 \\ \hline 36,000 \\ \hline \$ \quad 162,000 \\ \hline\\\hline 36,000 \\\hline 74,000 \\\hline\$ \quad 52,000 \\\hline \end{array}\begin{array}{c|}\hline \text {(6)}\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline \end{array}\begin{array}{c|}\hline \text {(7)}\\\hline \text { F/U}\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\\\hline\end{array}\begin{array}{c|}\hline \text {(8)}\\\hline \text { Actual } \\ \hline \text { Budget } \\ \hline 18,000 \\\hline \\\hline \$ 460,000\\\hline \\\hline 110,000 \\ \hline92,000 \\ \hline 50,000 \\ \hline 34,000 \\ \hline \$ \quad 174,000 \\ \hline\\\hline 34,000 \\\hline 76,000 \\\hline\$ \quad 64,000 \\\hline \end{array}\end{array}$ Required: 1)Compute and enter variances in columns 3 and 6.In column 3,enter the variance (difference)between column 2 and column 5;in column 4,label the variance as favorable (F)or unfavorable (U).In column 6,enter the variance between columns 5 and 8,and in column 7 indicate whether this variance is favorable or unfavorable. 2)Which column contains sales volume variances and which column contains flexible budget variances? 3)Comment on this company's performance.

Achieving the sales volume in the master budget is known as:

The following static budget is provided: $\begin{array}{|l|r|r|}\hline & \underline{\text { Per Unit }} & {\text { Total }} \\\hline \text { Sales } & \$ 60 & \$ 900,000 \\\hline \text { Less variable costs: } & & \\\hline {\text { Manufacturing costs }} & 30 & 450,000 \\\hline \text { Selling and administrative costs } & \underline{10} & \underline{150,000} \\\hline \text { Contribution margin } & \$ 20 & \$ 300,000 \\\hline \text { Less fixed costs: } & & \\\hline \text { Manufacturing costs } & &75,000 \\\hline \text { Selling and administrative costs } & & \underline{125,000} \\\hline \text { Total fixed costs } & &\underline{200,000} \\\hline \text { Net income } & &\$ 100,000 \\\hline & & \\\hline\end{array}$ What will be the overall volume variance if 12,000 units are produced and sold?

Douglas Company provided the following budgeted information for the current year. $\begin{array}{|l|r|}\hline \text { Sales price } & \$ 50 \text { per unit } \\\hline \text { Variable manufacturing cost } & 32 \text { per unit } \\\hline \text { Fixed manufacturing cost } & \$ 100,000 \text { total } \\\hline \text { Fixed selling and administrative cost } & \$ 40,000 \text { total } \\\hline\end{array}$ Douglas predicted that sales would be 20,000 units,but the sales actually were 22,000 units.The actual sales price was $48.50 per unit,and the actual variable manufacturing cost was $33 per unit.Actual fixed manufacturing cost and fixed selling and administrative cost were $104,000 and $39,000,respectively. Required: (a)Using the form below,prepare a flexible budget;show actual results;calculate the flexible budget variances;and indicate whether the variances are favorable (F)or unfavorable (U). $\begin{array}{|l|r|r|r|r|}\hline &\text { Flexible Budget } & \text { Actual Results } & \text { Flexible Budget } & \text { Favorable or }\\&&&\text {Variance } &\text {unfavorable} \\\hline \text { Number of units } &22,000 & 22,000 &0\\\hline \text { Sales Revenue } &1,100,000 & \$ 1,067,000& 33,000 \\\hline \text {Variable manufacturing costs } &704,000 & 726,000 & 22,000 \\\hline \text {Contribution margin } &396,000 & \$ 341,000& 55,000 \\\hline \text {Fixed manufacturing cost } &100,000 & 104,000 & 4,000 \\\hline \text {Fixed selling and administrative cost } &40,000 & 39,000&1,000 \\\hline \text {Net income } &256,000 & \$ 198,000& 58,000 \\\hline\end{array}$ (b)Assess the company's performance compared to the flexible budget. Align wording in the headings

Opal Manufacturing Company established the following standard price and cost information: $\begin{array}{|l|r|}\hline \text { Sales price } & \$ 50 \text { per unit } \\\hline \text { Variable manufacturing cost } & 32 \text { per unit } \\\hline \text { Fixed manufacturing cost } & \$ 100,000 \text { total } \\\hline \text { Fixed selling and administrative cost } & \$ 40,000 \text { total } \\\hline\end{array}$ Opal expected to produce and sell 25,000 units.Actual production and sales amounted to 26,500 units. Required: (a)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. (b)Classify the variances as favorable (F)or unfavorable (U). (c)Comment on the usefulness of the variances with respect to performance evaluation. (d)Explain why the fixed cost variances are zero.

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

If the master budget prepared at a volume level of 10,000 units includes direct labor of $10,000,a flexible budget based on a volume of 11,000 units would include direct labor of $10,000.

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 revenue flexible budget variance was:

When would a sales variance be listed as favorable?

Heartwood Company reported a $4,000 favorable direct labor price variance and a $1,500 unfavorable direct labor usage variance.Select the correct statement from the following.

To assess the importance of a variance,managers should consider,not just the materiality of the amount,but also the type of variance being analyzed.