Deck 15: Performance Evaluation

Question 1

Based on the information given, calculate the dollar amount of the variance and indicate whether it is favorable or unfavorable.

Answer 1

$6,000 unfavorable

Question 2

Based on the information given for a variance, indicate whether the variance is favorable or unfavorable.

Answer 2

Unfavorable

Question 3

Based on the information given for a variance, indicate whether the variance is favorable or unfavorable.

Answer 3

Favorable

Question 4

Based on the information given for a variance, indicate whether the variance is favorable or unfavorable.

Question 5

Use the following information to answer Question. The Furniture Division of Waverly Company reports the following results for 2012:
Waverly Company has set a target return on investment (ROI) of 12% for the Furniture Division.
Assume that the division believes its revenues and operating expenses will continue to be $400,000 and $360,000, respectively. To what level would the Furniture Division have to reduce its operating assets to achieve the target ROI?

Question 6

Use the following information to answer Question. The Furniture Division of Waverly Company reports the following results for 2012:
Waverly Company has set a target return on investment (ROI) of 12% for the Furniture Division.
Based on the information provided for Furniture, calculate its margin and turnover for 2012, and then use these amounts to calculate ROI.

Question 7

Use the following information to answer Question. The Furniture Division of Waverly Company reports the following results for 2012:
Waverly Company has set a target return on investment (ROI) of 12% for the Furniture Division.
Assume that the Furniture Division believes that it can reduce operating expenses by $25,000. If revenues and operating assets stay at the same level, what would the division's ROI be? Would it reach its target ROI?

Question 8

Use the following information to answer Question. Renfro Company has two divisions, the Restaurants Division and the Commissary Division. The following information was gathered for the two divisions in 2012:
Hays Company has set a target return on investment (ROI) of 12% for both divisions.
Calculate ROI for the Restaurants Division and the Commissary Division. Based on ROI, which division appears to have performed better?

Question 9

Based on the information given for a variance, indicate whether the variance is favorable or unfavorable.

Question 10

Based on the information given for a variance, indicate whether the variance is favorable or unfavorable.

Question 11

Use the following information to answer Question. Renfro Company has two divisions, the Restaurants Division and the Commissary Division. The following information was gathered for the two divisions in 2012:
Hays Company has set a target return on investment (ROI) of 12% for both divisions.
Assuming that these are the only divisions of Renfro Company, calculate ROI for the company as a whole.

Question 12

For 2012, the New Products Division of Tellis Company had operating income of $7,000,000 and operating assets of $38,800,000. Tellis has set a target return on investment (ROI) of 14% for each of its divisions.
The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Calculate ROI and residual income for this new product. Is the product acceptable from the company's point of view?

Question 13

For 2012, the New Products Division of Tellis Company had operating income of $7,000,000 and operating assets of $38,800,000. Tellis has set a target return on investment (ROI) of 14% for each of its divisions.
Calculate the return on investment and residual income for New Products in 2012. Did the division meet the target ROI?

Question 14

Use the following information to answer Question. Renfro Company has two divisions, the Restaurants Division and the Commissary Division. The following information was gathered for the two divisions in 2012:
Hays Company has set a target return on investment (ROI) of 12% for both divisions.
Calculate residual income (RI) for the Restaurants Division and the Commissary Division. Based on RI, which division appears to have performed better?

Question 15

For 2012, the New Products Division of Tellis Company had operating income of $7,000,000 and operating assets of $38,800,000. Tellis has set a target return on investment (ROI) of 14% for each of its divisions.
The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Assuming that the new product is put into production, calculate the residual income for the division. Would the new product increase or decrease the division's residual income?

Question 16

Use the following information to answer Question. Renfro Company has two divisions, the Restaurants Division and the Commissary Division. The following information was gathered for the two divisions in 2012:
Hays Company has set a target return on investment (ROI) of 12% for both divisions.
Restaurants and Commissary are the only divisions of Renfro Company. The company has $1,000,000 in operating assets that are not assigned to either of the divisions and $200,000 in corporate expenses that are not reflected in the information above. Based on this information, what is the ROI for the company as a whole?

Question 17

Based on the information given, calculate the dollar amount of the variance and indicate whether it is favorable or unfavorable.

Question 18

For 2012, the New Products Division of Tellis Company had operating income of $7,000,000 and operating assets of $38,800,000. Tellis has set a target return on investment (ROI) of 14% for each of its divisions.
The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Assuming that the new product is put into production, calculate the division's ROI. Would the new product increase or decrease the division's ROI?

Question 19

Use the following information to answer Question. The Furniture Division of Waverly Company reports the following results for 2012:
Waverly Company has set a target return on investment (ROI) of 12% for the Furniture Division.
Assume that 60% of the Furniture Division's operating expenses are variable. To what level would revenues have to increase to achieve the desired 12% ROI? Assume that the amount of operating assets will continue to be $500,000.

Question 20

Use the following information to answer Question. The Furniture Division of Waverly Company reports the following results for 2012:
Waverly Company has set a target return on investment (ROI) of 12% for the Furniture Division.
Based on the information provided for Furniture, calculate the return on investment for 2012. Did the division achieve its target ROI of 12%?

Question 21

What are responsibility centers? What are the three levels of responsibility centers commonly found in organizations?

Question 22

Who (what manager) in an organization is generally held responsible for volume variances?

Question 23

How does the use of standard costs fit with the philosophy of management by exception?

Question 24

For a product made by Parker Company, last year's standards for labor were 2 hours at $12 per hour. What should Parker take into account in setting the standards for this year?

Question 25

What causes the sales price variance to be unfavorable?

Question 26

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

Question 27

How should the manager of a cost center be evaluated?

Question 28

What is meant by "decentralization?"

Question 29

How might return on investment be used in making resource allocation decisions within an organization?

Question 30

Under what circumstances is a cost variance favorable?

Question 31

What are cost centers? What responsibilities does the manager of a cost center have? And at what level on an organization chart are you most likely to find cost centers?

Question 32

What are the responsibilities of the manager of an investment center? At what levels of an organization chart are investment centers most commonly found? What basis should be used for evaluating the manager of an investment center?

Question 33

What is a variance?

Question 34

What do marketing managers mean by the phrase, "making the numbers?"

Question 35

How does a flexible budget differ from a company's master budget?

Question 36

Distinguish between static and flexible budgets. Give an example of how flexible budgets might be used by a business.

Question 37

Under what circumstances is a sales variance favorable?

Question 38

Describe how a flexible budget is useful in planning for an organization.

Question 39

What are profit centers? How should the manager of a profit center be evaluated?

Question 40

How is the amount of a sales volume variance calculated?

Question 41

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

A) Asset center
B) Cost center
C) Investment center
D) Profit center

Question 42

Which of the following income statement formats is most commonly used with flexible budgeting?

A) Sales - manufacturing costs - selling and administrative costs = net income
B) Sales - cost of goods sold = gross margin - operating expenses = net income
C) Sales - variable costs = contribution margin - fixed costs = net income
D) None of these

Question 43

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

A) Database
B) Graphics
C) Spreadsheet
D) Word processing

Question 44

What is suboptimization? How might use of return on investment to evaluate a manager's performance lead to suboptimization?

Question 45

The following static budget is provided: $\begin{array}{l}\begin{array}{lll}Units&& 20,000 units \\\hline Sales& \$ & 200,000\\Less variable costs:\\\text { Manufacturing costs } & \$ & 70,000 \\\text { Selling and administrative costs } && 40.000 \\\hline \text { contribution Margin } & \$ & 90,000\end{array}\\\text { Less fixed costs: }\\\begin{array}{lll}\text { Manufacturing costs } & \$ & 22,000 \\\text { Selling and administrative costs } & \$ & 17,000 \\\text { net income } & \$ & 51,000\end{array}\end{array}$ What will be the budgeted net income if 18,000 units are produced and sold?

A) $31,000
B) $180,000
C) $400,000
D) $42,000

Question 46

Static and flexible budgets are similar in that

A) they both are prepared for multiple activity levels.
B) they both concentrate solely on costs.
C) they both are based on the same per unit variable amounts and the same total fixed costs.
D) None of these.

Question 47

Select the incorrect statement regarding flexible budgets.

A) Standard prices and costs are used in preparing a flexible budget.
B) A flexible budget is also known as a master budget.
C) Flexible budgets show estimated revenues and costs at multiple volume levels.
D) A flexible budget represents an extension of the master budget.

Question 48

The kind of responsibility center that would be evaluated by comparing the amount of income earned to the amount of assets invested is

A) a cost center.
B) an asset center.
C) an investment center.
D) a profit center.

Question 49

O'Donnell Company makes computer chips. Sam 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, Sam has been authorized to contract to perform maintenance for outside customers. In this company, the maintenance department is likely organized as

A) a cost center.
B) a revenue center.
C) a profit center.
D) an investment center.

Question 50

Butler Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 4,000 units: $$\begin{array}{l}\begin{array} {ll } & \text {pre unit }\\\hline\text { Revenue}&\$4.00\\\text {Variable costs }&1.50\\\text {Contribution margin }&\$2.50\\\text {Fixed costs }&2.00\\\text {Net income }&\$0.50\end{array}\end{array}$$ If actual production totals 5,000 units, the flexible budget would show fixed costs of:

A) $10,000.
B) $2 per unit.
C) $8,000.
D) None of these.

Question 51

The practice of delegating authority and responsibility is referred to as

A) decentralization.
B) standard costing.
C) management by exception.
D) centralization of authority.

Question 52

What is a balanced scorecard? How is the balanced scorecard used in performance evaluation?

Question 53

How is return on investment calculated? What are operating assets? Why are operating assets used in calculating return on investment, rather than all assets?

Question 54

The manager of Devon Company's Furniture Division is not satisfied with the level of return on investment that the division achieved this year. What can be done to improve return on investment?

Question 55

The research and development department of a large manufacturing company would likely be organized as

A) a cost center.
B) a profit center.
C) a revenue center.
D) an investment center.

Question 56

Contribution margin would be one of the most important measurements used in evaluating the performance of a

A) cost center.
B) profit center.
C) investment center.
D) organizational center.

Question 57

How is residual income calculated? What potential disadvantage is there in using residual income to evaluate and compare divisions of a company?

Question 58

What are margin and turnover? If a division can increase turnover with margin constant, how will return on investment be affected?

Question 59

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

A) strategic budget.
B) static budget.
C) standard budget.
D) flexible budget.

Question 60

Johansson Company developed the following static budget at the beginning of the company's accounting period: $$\begin{array} { l r } \text { Revenue } ( 8,000 \text { units } ) & \$ 16,000 \\\text { Variable costs } & \underline { 4,000 } \\\text { Contribution margin } & \$ 12,000 \\\text { Fixed costs } & \underline { 4,000 } \\\text { Net income } & \$ 8,000\end{array}$$ If the actual volume of sales was 8,200 units, the flexible budget would show variable costs of

A) $16,400.
B) $4,000.
C) $4,100.
D) $4,800.

Question 61

The China's Best Restaurant chain had a 12% return on a $60,000 investment in new ovens. The investment resulted in increased sales, and the resultant increase in income amounted to 4% of the increase in sales. The amount of the increase in sales must have been

A) $7,200.
B) $60,000.
C) $180,000.
D) $500,000.

Question 62

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

A) Variances should not be used to single out managers for punishment.
B) Variances must be analyzed carefully to ensure that they are fully understood.
C) Just because a cost variance is labeled as favorable doesn't necessarily mean that the manager should be commended for a job well done.
D) All of these

Question 63

Which of the following statements about ROI is false?

A) ROI is used to measure the performance of investment centers.
B) ROI = margin divided by investment turnover.
C) Trying to maximize ROI can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
D) The book value of operating assets is frequently used as the investment base for calculating return on investment.

Question 64

Etowah Company reported the following information for 2012: $$\begin{array} { l r } \text { Sales } & \$ 600,000 \\\text { Average Operating Assets } & \$ 300,000 \\\text { Margin } & 8 \%\end{array}$$ The company's ROI for 2012 was

A) 8%.
B) 16%.
C) 50%.
D) 4%.

Question 65

Chatooga Company provided the following selected information about its consumer products division for 2012: $\begin{array}{lc}\text { Desired ROI } & 8 \% \\\text { Net Income } & \$ 140,000 \\\text { Residual Income } & \$ 100,000\end{array}$ Based on this information, the division's investment amount (amount of operating assets) was

A) $500,000.
B) $1,200,000.
C) $1,240,000.
D) $160,000.

Question 66

The following static budget is provided: What will be the total volume variance (the effect on net income) if 18,000 units are produced and sold?

A) $0
B) $140,000
C) $360,000
D) $60,000

Question 67

The Groovy Movie Chains has invested in Italian snack bars for their stores, where individual pizzas are prepared and sold. The investment cost the company $45,000. The company expects a sales volume for the new product to be 12,000 pizzas a year. Variable materials, preparation, and marketing costs are expected to be $1.50 a unit and fixed costs are estimated at $15,000 a year. Based on a desired 12% ROI, what should Groovy Movies charge as the selling price per pizza?

A) $4.50
B) $2.75
C) $3.20
D) $5.20

Question 68

When would a variance be labeled as unfavorable?

A) When standard costs are more than actual costs
B) When expected sales are more than actual sales
C) When actual sales are equal to expected sales
D) None of these

Question 69

Athens Corporation desires a 12% ROI on all operations. The following information was available for the company in 2012: $\begin{array}{ll}\text { Sales } & \$ 14,000 \\\text { Operating Net Income } & \$ 2,800\\\text { Investment turnover }&.5\end{array}$ What is the corporation's ROI?

A) 10%
B) 12%
C) 15%
D) 20%

Question 70

When would a variance be labeled as favorable?

A) When standard costs are equal to actual costs
B) When standard costs are less than actual costs
C) When expected sales are greater than actual sales
D) When actual costs are less than standard costs

Question 71

The Brookings Company had a 12% return on a $50,000 investment in new equipment. The investment resulted in increased sales, and the resultant increase in income amounted to 4% of the increase in sales. Brookshire's turnover was

A) 1.
B) 1.5.
C) 2.
D) 3.

Question 72

Judson Company has an investment in assets of $900,000, income that is 10% of sales, and an ROI of 18%. From this information the amount of income would be

A) $162,000.
B) $140,000.
C) $72,000.
D) $90,000.

Question 73

Home Town Grocery has invested in yogurt stands for its stores. The investment cost the company $100,000. Variable materials, preparation, and marketing costs are expected to be $.60 a unit and fixed costs are estimated at $6,000 a year. If actual sales were 20,000 servings, what would the ROI be at a sales price of $1.70?

A) 16.0%
B) 22.0%
C) 28.0%
D) 8.4%

Question 74

Athens Corporation desires a 12% ROI on all operations. The following information was available for the company in 2012: $\begin{array}{ll}\text { Sales } & \$ 14,000 \\\text { Operating Net Income } & \$ 2,800\\\text { Investment turnover }&.5\end{array}$ What is the corporation's margin?

A) 10%
B) 12%
C) 15%
D) 20%

Question 75

Standard cost systems and the calculation of variances facilitate the management practice known as

A) management development.
B) management by exception.
C) just-in-time management.
D) managing by the numbers.

Question 76

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

A) flexible budget variance.
B) volume variance.
C) production activity variance.
D) static budget variance.

Question 77

Volume variances are computed for which of the following costs?

A) Variable manufacturing costs only
B) Fixed manufacturing costs only
C) Variable selling and administrative costs only
D) Variable manufacturing and selling and administrative costs

Question 78

Summer Company's static budget is based on a planned activity level of 25,000 units. Later, the company's management accountant prepared a budget based on 30,000 units. The company actually produced and sold 29,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets?

A) A budget based on 29,000 units
B) A budget based on 30,000 units
C) A budget based on 25,000 units
D) Either a budget based on 29,000 units or a budget based on 25,000 units

Question 79

Prater Company made a $100,000 investment in new machinery. Assuming the company's margin is 4%, what income will be earned if the investment generates $300,000 in additional sales?

A) $40,000.
B) $12,000.
C) $200,000.
D) None of these.

Question 80

Assuming actual volume is 11,000 units and planned volume is 10,000 units, the sales volume variance

A) is 1,000 units favorable.
B) is 1,000 units unfavorable.
C) cannot be determined without additional information.
D) None of these