Exam 8: Performance Evaluation

Select the correct statement regarding flexible budgets.

The purchasing department is considered to have primary responsibility for the materials usage variance.

The sales volume variance is favorable if actual sales volume is higher than the budgeted.

When would a variance be labeled as unfavorable?

What aspects of variances should managers consider in deciding which variances to investigate?

The two factors that determine the costs of manufacturing inputs (materials, labor, and overhead) are price and quantity.

Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units: If actual production totals 10,000 units which is within the relevant range, the flexible budget would show fixed costs of: Per unit Revenue \ 4.00 Variable costs 1.50 Contribution margin \ 2.50 Fixed costs 2.00 Net income

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

Indicate whether each of the following statements is true or false.The labor price variance is favorable when the actual rate paid for labor is higher than the standard rate.The production department is generally responsible for the labor price variance.If the standard quantity of labor per unit of a product is 0.5 hour and the actual quantity of labor is 0.45 hour, the labor price variance is favorable.Labor price variances measure the productivity of the labor force.Machine breakdowns and inferior materials can result in an unfavorable labor usage variance.

At the beginning of the period, Cambridge Company estimated that sales would be 10,000 units. Actual sales totaled 14,000 units. The manager was very excited about the unexpected additional income that the extra 4,000 units would produce. Imagine her surprise upon seeing the following report: The company's owner is very upset, charging that the manager did a lousy job of controlling costs.Required: 1) Prepare a performance report that can be used to evaluate the owner's charge that the manager did a poor job of controlling costs. Be sure to label variances as favorable or unfavorable.2) Is the owner justified in charging the manager with poor cost control? Why or why not? Static Budget Actual Results Number of units 10,000 14,000 Sales 500,000 600,000 Less variable costs: Materials 120,000 164,000 Labor 100,000 134,000 Overhead 50,000 72,000 Selling and admin 20,000 30,000 Contribution margin \ 210,000 \ 200,000 Less fixed costs: Mamufactuing 30,000 32,000 Selling and admin. 60,000 56,000 Net income \ 120,000 \ 112,000

Opal Manufacturing Company established the following standard price and cost information: 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. Sales price \ 50 per unit Variable manufacturing cost 32 per unit Fixed manufacturing cost \ 100,000 total Fixed selling and administrative cost \ 40,000 total

Which manager is usually held responsible for materials price variances?

Marks Company makes one product, for which it has established the following standards for materials: Average quantity of material per unit of product: 4.5 pounds Price per pound of materials, $16 During March, Marks made 10,000 units of the product, using 50,000 pounds at a total purchase price of $825,000.Required: (a) Determine the total flexible budget materials variance and indicate whether it is favorable or unfavorable.(b) Calculate the materials price variance and indicate whether it is favorable or unfavorable.(c) Determine the materials usage variance and indicate whether it is favorable or unfavorable.

If the master budget prepared at a volume level of 10,000 units includes direct materials of $40,000, a flexible budget based on a volume of 12,000 units would include direct materials of $48,000.

Static and flexible budgets are similar in that:

Hickam Company makes one product, for which it has developed the following standard for labor: each unit should require 1.50 hours at $12/hour. In April, Hickam made 10,000 units, using 1.65 hours per unit at a cost of $11.50 per hour.Required: (a) Determine the total labor variance and indicate whether it is favorable or unfavorable.(b) Determine the labor price variance and indicate whether it is favorable or unfavorable.(c) Determine the labor usage variance and indicate whether it is favorable or unfavorable.

Newton Company's management accountant prepared the following variance report for management: Required: 1) Identify which manager (if any) would likely be held responsible (at least prior to further investigation) for each of the following variances: (a) Direct material price variance (b) Direct materials usage variance (c) Direct labor price variance (d) Direct labor usage variance (e) Fixed cost spending variance (f) Fixed cost volume variance 2) Provide at least two possible explanations for each of the following variances: the direct materials price variance and the direct labor usage variance.

Timberlake Company planned for a production and sales volume of 12,000 units. However, the company actually makes and sells 13,000 units.What was the total variable cost volume variance? Static Budget Flexible Budget Number of units 12,000 13,000 Per unit standards Sales revemue \ 65.00 \7 80,000 \8 45,000 Variable manufacturing costs Materials \ 11.00 132,000 143,000 Labor \ 9.00 108,000 117,000 Overhead \ 4.20 50,400 54,600 Variable G,S\&A \ 11.00 132,000 143,000 Contribution margin \ 357,600 \ 387,400 costs Manufacturing overhead 100,800 100,800 ,\& 45,000 45,000 Net income \ 211,800 \ 241,600

Douglas Company provided the following budgeted information for the current year.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).(b) Assess the company's performance compared to the flexible budget. Sales price \ 50 per unit Variable manufacturing cost 32 per unit Fixed manufacturing cost \ 100,000 total Fixed selling and administrative cost \ 40,000 total Align wording in the headings

Flexible budget amounts for variable costs and revenues come from multiplying standard per unit amounts by the planned volume of production.