Exam 24: Budgetary Planning

The East Division, a profit center of Baden Engineering Company, reported the following data for the first quarter of 2010: Instructions (a) Prepare a performance report for the manager of the East Division. (b) What is the best measure of the manager's performance? Why? (c) How would the responsibility report differ if the division was an investment center?

Payne Company has two investment centers and has developed the following information: Instructions Answer the following questions about Department A and Department B. 1. What was the amount of Department A's average operating assets? $____________. 2. What was the amount of Department B's controllable margin? $____________. 3. If Department B is able to reduce its operating assets by $100,000, Department B's new ROI would be ____________. 4. If Department A is able to increase its controllable margin by $60,000 as a result of reducing variable costs, Department A's new ROI would be _________________.

A distinction should be made between controllable and noncontrollable costs when reporting information under responsibility accounting.

All of the following statements are correct about controllable costs except

Which of the following valuations of operating assets is not readily available from the accounting records?

Under ___________________ accounting, the evaluation of a manager's performance is based on the costs and revenues directly under that manager's control.

A static budget is an effective means to evaluate a manager's ability to control costs, regardless of the actual activity level.

A cost is considered controllable at a given level of managerial responsibility if

The West Division of Pierce Company reported the following data for the current year. Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the West Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action. 1. Increase sales by $420,000 with no change in the contribution margin percentage. 2. Reduce variable costs by $120,000. 3. Reduce average operating assets by 4% Instructions (a) Compute the return on investment (ROI) for the current year. (b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.)

At 9,000 direct labor hours, the flexible budget for indirect materials is $18,000. If $18,700 are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials:

A responsibility report should

Decentralization means that the control of operations is delegated by top management to many individuals throughout the organization.

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

The primary basis for evaluating the performance of a manager of an investment center is _________________.

Data for the following subsidiaries of Roberts Company, which are operated as investment centers, are as follows: Instructions Compute the missing amounts using the ROI formula.

An advantage of the return on investment ratio is that no judgmental factors are involved.

A major element in budgetary control is

Ashcroft, Inc. prepared a 2010 budget for 60,000 units of product. Actual production in 2010 was 65,000 units. To be most useful, what amounts should a performance report for this company compare?

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of

A flexible budget is a series of static budgets at different levels of activities.