Exam 24: Budgetary Control and Responsibility Accounting

A cost center

Under management by exception which differences between planned and actual results should be investigated?

Managers are motivated to accomplish objectives if they feel that their efforts will be fairly evaluated. Explain why an organization may use different bases for evaluating the performance of managers of different types of responsibility centers.

If controllable margin is $300000 and the average investment center operating assets are $2000000 the return on investment is

Cadiz Co. uses flexible budgets to control its selling expenses. Monthly sales are expected to be from $300000 to $360000. Variable costs and their percentage relationships to sales are: Sales commissions 5\% Advertising 4\% Traveling 7\% Delivery 1\% Fixed selling expenses consist of sales salaries $40000 and depreciation on delivery equipment $10000. The actual selling expenses incurred in February 2016 by Cadiz are as follows: Sales commissions \ 17,200 Advertising 12,000 Traveling 23,700 Delivery 2,400 Fixed selling expenses consist of sales salaries $41500 and depreciation on delivery equipment $10000. Instructions Prepare a flexible budget performance report assuming that February sales were $330000.

Cyber Construction's manufacturing costs for August when production was 1000 units appear below: Direct material \ 12 per unit Direct labor \ 7,500 Variable overhead 6,000 Factory depreciation 9,000 Factory supervisory salaries 7,800 Other fixed factory costs 2,500 Instructions Compute the flexible budget manufacturing cost amount for a month when 900 units are produced.

Controllable margin is defined as

Dixon Corporation evaluates its managers based on return on investment (ROI). Kathryn Bricker and Lindsey Allan managers of the electronics and housewares departments respectively have recently suffered from declining profits in their departments. Over lunch they discuss the problem and how they could improve performance. Most of the discussion centers around ways to increase sales. Near the end of the lunch period however Lindsey remarks that there are two components to consider and that they have considered only one. She wonders whether there is some way to reduce investment and by decreasing the denominator of the ROI fraction to improve the final result. Back at work Kathryn continues to mull over Lindsey's remarks. She decides to pursue the matter further and before the end of the quarter she has sold quite a bit of older equipment and replaced it with equipment obtained with a short-term lease. Her performance measured by ROI is markedly improved although sales continue to be disappointing. Required: 1. Who are the stakeholders in this situation? 2. Is Kathryn's action ethical? Briefly explain.

A flexible budget can be prepared for each of the types of budgets included in the master budget.

The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted.

The use of budgets in controlling operations is known as ________________.

Sage Division's operating results include: $\bullet$ Controllable margin $300000 $\bullet$ Sales revenue $2400000 $\bullet$ Operating assets $1000000 Sage is considering a project with sales of $240000 expenses of $168000 and an investment of $360000. Sage's required rate of return is 15%. Instructions Determine whether Sage should accept this project.

To develop the flexible budget management takes all of the following steps except identify the

A flexible budget graph for the Assembly Department shows the following: 1. At zero direct labor hours the total budgeted cost line intersects the vertical axis at $120000. 2. At normal capacity of 50000 direct labor hours the line drawn from the total budgeted cost line intersects the vertical axis at $360000. Instructions Develop the budgeted cost formula for the Assembly Department and identify the fixed and variable costs.

Ace Production Co. has two production departments, Fabricating and Assembling. At a department managers’ meeting, the controller uses flexible budget graphs to explain total budgeted costs. Separate graphs based on direct labor hours are used for each department. The graphs show the following. 1. At zero direct labor hours, the total budgeted cost line and the fixed cost line intersect the vertical axis at $100,000 in the Fabricating Department, and $80,000 in the Assembling Department. At normal capacity of 100000 direct labor hours the line drawn from the total budgeted cost line intersects the vertical axis at $360000 in the Fabricating Department and $290000 in the Assembling Department. Instructions (a) State the total budgeted cost formula for each department. (b) Compute the total budgeted cost for each department assuming actual direct labor hours worked were 106000 and 94000 in the Fabricating and Assembling Departments respectively.

Best Shingle's budgeted manufacturing costs for 50000 squares of shingles are: Fixed manufacturing costs $\quad\quad\quad \$ 12,000$ Variable manufacturing costs $\quad\quad\$ 16.00$ per square Best produced 40000 squares of shingles during March. How much are budgeted total manufacturing costs in March?

Flexible budgeting relies on the assumption that unit variable costs will remain constant within the relevant range of activity.

An investment center manager is considering three possible investments. The company's required return is 10%. The required asset investment controllable margins and the ROIs of each investment are as follows: The investment center is currently generating an ROI of 23% based on $1200000 in operating assets and a controllable margin of $276000. Instructions If the manager can select only one project determine which one is the best choice to increase the investment center's ROI. Compute how much the investment center's ROI will be if the manager selects your recommendation.

Which of the following is not a true statement?

Budget reports comparing actual results with planned objectives should be prepared only once a year.