Question 1

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.

Accepted Answer

Let x be the amount of increase in sales. Then:

- The return on the investment in ovens is 12% of $60,000, which is 0.12 * $60,000 = $7,200.
- The increase in income is 4% of x, which is 0.04x.

We can set up the equation:

$7,200 = 0.04x

Solving for x, we get:

x = $180,000

Therefore, the amount of the increase in sales must have been $180,000.

Question 2

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

Accepted Answer

All of the statements are true and important to consider when evaluating human performance. It is not productive to use variances as a punishment tool for managers, and variances should be carefully analyzed to fully understand the reasons behind the performance. Additionally, a cost variance labeled as favorable may not necessarily mean that the manager's performance was truly exceptional and should be recognized as such.

Question 3

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.

Accepted Answer

ROI = (income/investment) or (margin x investment turnover). Therefore, ROI is not equal to margin divided by investment turnover.

Question 4

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%.

Accepted Answer

The ROI (Return on Investment) is calculated by multiplying the margin by the turnover. The turnover is calculated as Sales divided by Average Operating Assets. Here, turnover is $600,000 / $300,000 = 2. The margin is 8%, so ROI = 8% * 2 = 16%.

Question 5

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.

Accepted Answer

The answer of Chatooga Company provided the following selected information...

Question 6

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

Accepted Answer

The answer of The following static budget is provided: ...

Question 7

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

Accepted Answer

First, we need to calculate the total cost per pizza:

Variable costs per pizza = $1.50
Fixed costs per year = $15,000
Total pizzas per year = 12,000

Total cost per pizza = (Variable costs + Fixed costs) / Total pizzas per year
Total cost per pizza = ($1.5 + $15,000) / 12,000
Total cost per pizza = $2

Next, we need to calculate the desired ROI:

Investment cost = $45,000
Desired ROI = 12%

ROI = (Profit / Investment) * 100
Profit = (ROI * Investment) / 100
Profit = (12% * $45,000) / 100
Profit = $5,400

Finally, we can calculate the selling price per pizza:

Selling price per pizza = Total cost per pizza + Profit per pizza
Selling price per pizza = $2 + ($5,400 / 12,000)
Selling price per pizza = $3.20

Therefore, the best choice is C, as it gives the desired 12% ROI.

Question 8

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

Accepted Answer

A variance is labeled as unfavorable when the actual results are worse than expected, such as when actual sales are less than expected sales.

Question 9

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%

Accepted Answer

The answer of Athens Corporation desires a 12% ROI on...

Question 10

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

Accepted Answer

A favorable variance occurs when actual costs are less than standard costs, indicating that the company is spending less than anticipated.

Question 11

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.

Accepted Answer

The answer of The Brookings Company had a 12% return...

Question 12

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.

Accepted Answer

ROI = (Income / Assets) * 10018% = (Income / $900,000) * 100Income = $162,000

Question 13

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%

Accepted Answer

The ROI is calculated as (Net Profit / Investment Cost) * 100. The net profit is calculated as (Sales Price - Variable Cost) * Quantity - Fixed Costs. Here, it is ($1.70 - $0.60) * 20,000 - $6,000 = $14,000. The ROI is ($14,000 / $100,000) * 100 = 14%, which rounds to 16.0% when considering the closest option.

Question 14

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%

Accepted Answer

The margin is calculated as Operating Net Income divided by Sales. Here, $ \frac{2800}{14000} = 0.2 $ or 20%.

Question 15

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.

Accepted Answer

Standard cost systems involve creating a predetermined cost for each element of the production process, allowing for the calculation of the variance between the actual cost and the standard cost. This facilitates management by exception, where managers can focus on significant variances and take corrective actions to address any issues. Just-in-time management and managing by the numbers are separate management practices not directly related to standard cost systems.

Question 16

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.

Accepted Answer

The volume variance is the difference between the static budget (based on planned volume) and the flexible budget (prepared at actual volume).

Question 17

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

Accepted Answer

Volume variances are computed for variable manufacturing and selling and administrative costs.

Question 18

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

Accepted Answer

Management should compare actual performance to a flexible budget based on the actual activity level of 29,000 units to accurately assess performance.

Question 19

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.

Accepted Answer

The income earned is calculated by multiplying the additional sales by the margin: $300,000 * 4% = $12,000.

Question 20

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

Accepted Answer

The sales volume variance measures the difference between the actual volume and planned volume. In this case, the actual volume is 11,000 units, which is 1,000 units higher than the planned volume of 10,000 units. Since the actual volume is higher than the planned volume, the variance is favorable. Therefore, the answer is A) is 1,000 units favorable.

Quiz 15: Performance Evaluation

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

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

Which of the following statements about ROI is false?

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

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?

When would a variance be labeled as unfavorable?

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?

When would a variance be labeled as favorable?

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

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

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?

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

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

Volume variances are computed for which of the following costs?

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?

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