Chapter 15 - SMARTBOOK

True or false: When an income statement shows sales and expenses for segments of the organization, the sales and expenses for each segment are added together in order to get totals for the whole organization.

true

The difference between the actual and budgeted amounts shown in a performance report is called a

variance

An investment center performance measure designed to avoid the risk of suboptimization is:

residual income

A system of performance reporting that involves successive degrees of summarization as the number of management responsibility levels being reported about increases is called_____reporting.

responsibility

A performance reporting technique used to communicate explanations of variances to each manager within the organization with an appropriate level of detail or summarization is known as:

responsibility reporting

A price established for the "sale" of goods or services from one segment of an organization to another segment of the organization is a(n) -- price

transfer

Click and drag on elements in order Place the planning and control steps for production cost components (raw materials, direct labor, and manufacturing overhead) in the correct sequential order, with the first step at the top. Prepare a budget for the planned level of activity. Determine the standard cost of each cost component. Accumulate actual product costs at the actual level of activity achieved.

1. Determine the standard cost of each cost component. 2. Prepare a budget for the planned level of activity. 3. Accumulate actual product costs at the actual level of activity achieved.

ABC Company's performance report for April included the following for raw materials: Budgeted cost = $62,000; Actual cost = $64,600; Variance = $___.. Use F or U to identify the variance as favorable or unfavorable:___

2600; U

ABC Company's standard price for raw material #123 is $8 per gallon. During the month of January, ABC purchased 12,000 gallons of raw material #123 at $8.25 per gallon and used 10,500 gallons. ABC's raw material purchase price variance for January is

3,000 unfavorable Reason: RMPPV = ($8.00 - $8.25) x 12,000 gallons = $3,000

ABC Company's production budget for March is 32,000 units. Budgeted fixed overhead is $64,000. ABC's standard fixed overhead application rate is $2 per machine hour, and each unit is allowed a standard of 1 hour of machine time. Actual fixed overhead for March is $67,000. Actual production in March is 36,000 units. Calculate the fixed overhead budget variance for March: Fixed overhead budget variance = $. Use F or U to identify the variance as Favorable or Unfavorable:

Blank 1: 3,000 or 3000 Blank 2: U

ABC Company's production budget for October is based on 500 units. Standard unit cost for variable overhead is $25 per unit ($5 per hour x 5 hours per unit). ABC's actual production in October = 525 units. The actual cost of variable overhead = $18,900 ($6 per hour x 6 hours per unit). Calculate the variable overhead spending variance for October:

Blank 1: 3,150 or 3150 Blank 2: U

A set of integrated financial and operating performance measures that communicates an organization's priorities associated with achieving strategic goals is known as a(n)

Blank 1: balanced Blank 2: scorecard

If ABC Company outsources its product service division, (common/direct) fixed expenses would be eliminated but (common/direct) fixed expenses would continue to be incurred.

Blank 1: direct Blank 2: common

ABC Company's production budget for March is 32,000 units. Budgeted fixed overhead is $64,000. ABC's standard fixed overhead application rate is $2 per machine hour, and each unit is allowed a standard of 1 hour of machine time. Actual fixed overhead for March is $67,000. Actual production in March is 36,000 units.

Blank 1: overhead Blank 2: units

A direct labor budget variance is further analyzed into a direct labor (price/rate/spending) variance and a direct labor (usage/efficiency) variance.

Blank 1: rate Blank 2: efficiency

A variable overhead budget variance is further analyzed into a variable overhead (price/rate/spending) variance and a variable overhead (usage/efficiency) variance.

Blank 1: spending Blank 2: efficiency

The raw materials price variance is calculated at the time raw materials are (acquired/used). In contrast, the raw material purchase price variance is calculated at the time raw materials are (acquired/used).

Blank 1: used Blank 2: acquired

Drag each definition to the type of variance it describes. Instructions

Direct labor rate variance = That part of the direct labor budget variance due to the difference between the actual hourly wage rate paid and the standard rate Direct labor efficiency variance = That part of the direct labor budget variance due to the difference between the actual hours worked and the standard hours allowed

Drag each definition to the type of variance it matches. Instructions Favorable variance Unfavorable variance The excess of actual revenue over the budgeted revenue The excess of actual expense over the budgeted expense

Favorable variance = The excess of actual revenue over the budgeted revenue Unfavorable variance = The excess of actual expense over the budgeted expense

Select all that apply Which statements regarding flexible budgeting are true? Multiple select question. It is done by multiplying the variable cost per unit of each variable cost item by the actual activity level. It involves variable cost items such as direct materials, direct labor, and variable manufacturing overhead. The budget allowance for variable costs should be flexed to show the costs that should have been incurred for the actual level of activity. Flexible budgeting should include an adjustment to the fixed overhead budget.

It is done by multiplying the variable cost per unit of each variable cost item by the actual activity level. It involves variable cost items such as direct materials, direct labor, and variable manufacturing overhead. The budget allowance for variable costs should be flexed to show the costs that should have been incurred for the actual level of activity.

Identify a true statement about the raw materials purchase price variance.

It is the variance that is calculated and reported at the time materials are purchased rather than when they are used.

The primary objective of _____ reporting is to highlight those activities for which actual and planned results differ, favorably or unfavorably, so that appropriate action can be taken.

performance

A raw materials budget variance is further analyzed into a raw materials (price/rate/spending) variance and a raw materials (usage/efficiency) variance.

price; usage

An example of a cost that is noncontrollable in the short run is:

property taxes

Which of the following variances is determined during both variable overhead and fixed overhead variance analyses?

Budget variance

A balanced scorecard framework is integrated through four key perspectives. Place these key perspectives on a balanced scorecard in the correct order from the lowest level perspective (placed at the bottom) to the highest level perspectives (placed at the top). Customer Financial Internal business process Learning and growth

1. Financial 2. customer 3. internal business process 4. learning and growth

Click and drag on elements in order Place the following segmented income statement elements in the correct logical order, with the first element at the top. Variable expenses Contribution margin Direct fixed expenses Sales Operating income Segment margin Common fixed expenses

1. Sales 2. Variable expenses 3. Contribution Margin 4. Direct fixed expenses 5.Segment margin 6. common fixed expenses 7. operating income

The Central Division of ABC Company indicates the following performance information and has determined that a minimum return on investment (ROI) of 12 percent should be expected from all investments: Sales = $800,000; Operating income = $60,000; Operating assets = $400,000. Central Division's Residual income = $.

12,000

The Central Division of ABC Company has the following performance information: Sales = $500,000; Segment margin = $60,000; Operating assets = $250,000. Central Division's return on investment (ROI) = %.

24

ABC Company's production budget for October is based on 500 units. Standard unit cost for variable overhead is $25 per unit ($5 per hour x 5 hours per unit). ABC's actual production in October = 525 units. The actual cost of variable overhead = $18,900 ($6 per hour x 6 hours per unit). Calculate the variable overhead spending variance for October: Variable overhead spending variance = $ ____. Use F or U to identify the variance as Favorable or Unfavorable:____

Blank 1: 3,150 or 3150 Blank 2: U

ABC Company's production budget for April included the following for direct labor: Budgeted production = 15,000 units; Budgeted direct labor unit cost = $24 per unit. ABC Company's actual production for April was the following: Actual production = 16,000 units; Actual direct labor cost = $25.00 per unit. Calculate the following items for ABC's April performance report for direct labor: Original budget = $. Flexed budget = $.

Blank 1: 360,000 or 360000 Blank 2: 384,000 or 384000

ABC Company's production budget for April included the following for raw materials: Budgeted production = 35,000 units; Budgeted raw materials unit cost = $16 per unit. ABC Company's actual production for April was the following: Actual production = 36,000 units; Actual raw materials cost = $16.20 per unit. Calculate the following items for ABC's April performance report for raw materials:

Blank 1: 560,000 or 560000 Blank 2: 576,000 or 576000 Blank 3: 583,200 or 583200 Blank 4: 7,200 U or 7200 U

ABC Company's production budget for October is based on 500 units. Standard unit cost for direct labor is $100 per unit ($20 per hour x 5 hours per unit). ABC's actual production in October = 525 units. The actual cost of direct labor = $56,700 ($18 per hour x 6 hours per unit). Calculate the direct labor rate variance for October: Direct labor rate variance = $______. Use F or U to identify the variance as Favorable or Unfavorable______

Blank 1: 6,300 or 6300 Blank 2: F

ABC Company's performance report for April included the following for sales expense: Budgeted cost = $12,800; Actual cost = $13,500; Variance = $ _____.. Use F or U to identify the variance as favorable or unfavorable:_____

Blank 1: 700 Blank 2: U

Without expanding the return on investment (ROI) calculation in the DuPont model, ROI is simply calculated as: ROI =

Blank 1: Segment Blank 2: margin Blank 3: Operating Blank 4: assets

The amount of operating income an investment center generates above a minimum required ROI is known as

Blank 1: residual Blank 2: income

Drag each definition to the type of variance it matches. Budget variance Cost per unit of input variance Quantity variance That part of a variable cost budget variance due to a difference between the actual and standard quantities (amount used) of inputs The difference between actual and budgeted/standard amounts That part of a variable cost budget variance due to a difference between the actual and standard costs (price paid) per unit of input

Budget variance= The difference between actual and budgeted/standard amounts Cost per unit of input variance = That part of a variable cost budget variance due to a difference between the actual and standard costs (price paid) per unit of input Quantity variance = That part of a variable cost budget variance due to a difference between the actual and standard quantities (amount used) of inputs

Drag each budget variance to the factor that matches it.

Cost per unit of input = Raw materials price variance Direct labor rate variance Variable overhead spending variance Quantity= Raw materials usage variance Direct labor efficiency variance Variable overhead efficiency variance

Which product cost items will need "flexing" when production cost variances are analyzed at the end of the period?

Direct material Variable manufacturing overhead Direct labor

Why should the budget allowance for variable costs be flexed?

To show the costs that should have been incurred for the level of activity actually experienced

The DuPont model is an expansion of the return on investment (ROI) calculation, to the formula: Margin X

Turnover

A fixed manufacturing overhead variance caused by the actual activity being different from the estimated activity used in calculating the predetermined overhead application rate is called:

a volume variance

If the net standard costing variance of a business is significantly relevant to the total production cost, the net variance should be

allocated between inventories and cost of goods sold

The term "transfer price" refers to the price at which a product or service is sold by one segment to

another related segment

If the net standard costing variance of a business is considered immaterial to the total production cost, the net variance should be:

assigned to cost of goods sold

A high-level integrated approach to measuring and reporting organizational performance is accomplished by using a:

balanced scorecard

A management activity in the planning and control cycle that compares actual performance with planned activity is known as:

controlling

ABC Company is considering eliminating its parts division as a result of its current operating performance: Sales = $40,000; Variable expenses = $20,000; Contribution margin = $20,000; Fixed expenses = $23,000; Operating income = $(3,000). ABC determines that $15,000 of the $23,000 fixed expenses are direct fixed expenses to the parts division.If ABC Company eliminates the parts division, ABC's total operating income will (increase/decrease) by $.

decrease; 5000

When the actual level of activity achieved during a performance period is different from the original budgeted level of activity, a Blank______ budget is prepared to reflect the actual level of activity achieved.

flexible

Using management by exception to determine what budget variances to investigate suggests that you would:

investigate if the variance is significant

A management technique that permits managers to concentrate their attention on only those activities that have a significant variance, with the objective of understanding why the variance occurred, is known as:

management by exception

Select all that apply Which of the following organizational perspectives are reported on a balanced scorecard? Multiple select question. Learning and growth Operational Environmental Financial Strategic Internal business process Customer

Learning and growth Financial Internal business process Customer

Select all that apply Using management by exception, which of the following variances would likely be further investigated? Multiple select question. Sales revenue variance: $410 unfavorable Manufacturing overhead variance: $4,900 unfavorable Direct labor variance: $325 favorable Raw materials variance: $6,800 favorable

Manufacturing overhead variance: $4,900 unfavorable Raw materials variance: $6,800 favorable

Synergy Inc. has reported the following operating information for one of its divisions: Sales revenue $150,000; Operating income $30,000; Operating assets $375,000. Calculate the division's margin, turnover, and return on investment (ROI).

Margin = $30,000 / $150,000 = 20%; Turnover = $150,000 / $375,000 = 0.40 turns; ROI = Margin × Turnover = 20% × 0.40 turns = 8% OR $30,000 / $375,000 = 8%

Matching Question Drag each description to the type of cost it matches. Instructions Noncontrollable cost Controllable cost A cost that is influenced by managers in the long run A cost that cannot be influenced by managers in the short run

Noncontrollable cost = A cost that cannot be influenced by managers in the short run Controllable cost = A cost that is influenced by managers in the long run

Which of the following formulas calculates residual income?

Operating income - Required ROI $

ABC Company's production budget for April included the following for direct labor: Budgeted production = 15,000 units; Budgeted direct labor unit cost = $24 per unit. ABC Company's actual production for April was the following: Actual production = 16,000 units; Actual direct labor cost = $25.00 per unit. Calculate the following items for ABC's April performance report for direct labor:

Original budget = $360,000. Flexed budget = $384,000

Excellent Company has provided the following operating information for one of its divisions: Sales $100,000; Variable expenses $55,000; Contribution margin $45,000; Direct fixed expenses $35,000. Common fixed expenses allocated in proportion to sales amounts to $16,000. Based on the provided information, calculate the division's segment margin.4

Reason: Segment margin = Contribution margin − Direct fixed expenses = $45,000 − $35,000 = $10,000

Elite Company reports sales revenue of $200,000, operating income of $20,000, and operating assets of $100,000 for one of its divisions. The company's management expects a minimum return of 10 percent from all the investments made by the division. Based on the scenario, the division's residual income is

Residual income = Operating income − Required ROI $ = Operating income − (Operating assets × Required ROI %) = $20,000 − ($100,000 × 10%) = $20,000 − $10,000 = $10,000

Drag each description to the segment of an organization that matches it. Instructions

Responsibility center =An element of the organization over which a manager has been assigned responsibility and authority Cost center = A responsibility center for which performance is evaluated by comparing the actual cost with the budgeted cost. This segment does not directly generate revenue for the organization. Profit center = A responsibility center for which performance is evaluated by comparing the actual profit with the budgeted profit Investment center = A responsibility center for which performance is evaluated by comparing the actual return on an investment with the budgeted return on the investment

Which terms are used to describe the cost per unit of input variance for different product cost components (raw materials, direct labor, and manufacturing overhead)?

Spending variance Price variance Rate variance

A unit of an organization, such as a product line, sales territory, or group of related activities, is known as a(n)

segment

The term describing the contribution of a segment of an organization to the common fixed expenses and operating income of the organization is_____ margin.

segment

The result of an investment center manager rejecting an opportunity to invest in a project that would increase the ROI of the company as a whole but would lower the ROI of the investment center manager is known as

suboptimization