Quiz Questions 9-12 (practice)

BR Company has a contribution margin of 40%. Sales are $312,500, net operating income is $25,000, and average operating assets are $200,000. What is the company's return on investment (ROI)?

12.5%

In a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

Pankey Incorporated has a $700,000 investment opportunity that would involve sales of $1,050,000, a contribution margin ratio of 40% of sales, and fixed expenses of $325,500. The company's minimum required rate of return is 18%. The residual income for this year's investment opportunity is closest to:

(31500)

At Jacobson Company, indirect labor is a variable cost that varies with direct labor-hours. Last month's performance report showed that actual indirect labor cost totaled $5,780 for the month and that the associated spending variance was $245 Favorable. If 24,100 direct labor-hours were actually worked last month, then the flexible budget cost formula for indirect labor must be (per direct labor-hour):

0.25 (5780/24100)

Which of the following statements is true? 1. Flexible budgets can be used when there is more than one cost driver (i.e., measure of activity). 2. A flexible budget performance report with more than one cost driver will always have more unfavorable revenue and spending variances than a performance report with only one cost driver. 3. A flexible budget performance report with more than one cost driver can contain activity variances but not revenue or spending variances due to the increased complexity. 4. Performance reports with more than one cost driver typically have more accurate variances than those based on one cost driver.

1 & 4

Which of the following statements is true? 1. The materials price variance is computed based on the amount of materials purchased during the period. 2. The standard price per unit for direct materials should reflect the final, delivered cost of the materials. 3. In general, the production manager is responsible for the materials price variance. 4. An unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period.

1 and 2 are true

Hirons Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $59,000 per month plus $3,116 per flight plus $16 per passenger. The company expected its activity in November to be 90 flights and 246 passengers, but the actual activity was 93 flights and 248 passengers. The actual cost for plane operating costs in November was $341,630. The spending variance for plane operating costs in November would be closest to:

11126 F

Pittman Framing's cost formula for its supplies cost is $1,050 per month plus $15 per frame. For the month of November, the company planned for activity of 615 frames, but the actual level of activity was 605 frames. The actual supplies cost for the month was $10,000. The spending variance for supplies cost in November would be closest to:

125 F

Chiodini Incorporated has a $900,000 investment opportunity that involves sales of $2,430,000, fixed expenses of $1,044,900, and a contribution margin ratio of 50% of sales. The ROI for this year's investment opportunity considered alone is closest to:

18.9%

Magno Cereal Corporation uses a standard cost system for its "crunchy pickle" cereal. The materials standard for each batch of cereal produced is 1.4 pounds of pickles at a standard cost of $3.00 per pound. During the month of August, Magno purchased 78,000 pounds of pickles at a total cost of $253,500. Magno used all of these pickles to produce 60,000 batches of cereal. What is Magno's materials quantity variance for August?

18000 F

Thilking Midwifery's cost formula for its wages and salaries is $2,140 per month plus $454 per birth. For the month of August, the company planned for activity of 102 births, but the actual level of activity was 100 births. The actual wages and salaries for the month was $47,660. The wages and salaries in the flexible budget for August would be closest to:

47540

Teel Printing uses two measures of activity, press runs and book set-ups, in the cost formulas in its budgets and performance reports. The cost formula for wages and salaries is $8,850 per month plus $400 per press run plus $950 per book set-up. The company expected its activity in July to be 204 press runs and 111 book set-ups, but the actual activity was 201 press runs and 110 book set-ups. The actual cost for wages and salaries in July was $193,780. The wages and salaries in the flexible budget for July would be closest to:

193,750

Which of the following statements is true? 1. If activity is higher than expected, total fixed costs should be higher than expected. If activity is lower than expected, total fixed costs should be lower than expected. 2. Comparing a static planning budget to actual costs is not a good way to assess whether variable costs are under control. 3. In a flexible budget, when the activity declines, the total variable cost also declines.

2 and 3 are true

Birkner Corporation's flexible budget performance report for last month shows that actual indirect materials cost, a variable cost, was $30,444 and that the spending variance for indirect materials cost was $8,142 favorable. During that month, the company worked 17,700 machine-hours. Budgeted activity for the month had been 18,200 machine-hours. The cost formula per machine-hour for indirect materials cost must have been closest to:

2.18 (17700/8142)

Groupe Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $36,230 per month plus $2,056 per flight plus $1 per passenger. The company expected its activity in October to be 83 flights and 233 passengers, but the actual activity was 82 flights and 238 passengers. The actual cost for plane operating costs in October was $198,000. The activity variance for plane operating costs in October would be closest to:

2051 F - flexible compared to planned

Canniff Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $57,010 per month plus $2,636 per flight plus $7 per passenger. The company expected its activity in February to be 68 flights and 272 passengers, but the actual activity was 67 flights and 273 passengers. The actual cost for plane operating costs in February was $234,340. The plane operating costs in the planning budget for February would be closest to:

238,162

Gipple Corporation makes a product that uses a material with the quantity standard of 7.3 grams per unit of output and the price standard of $6.00 per gram. In January the company produced 3,400 units using 24,870 grams of the direct material. During the month the company purchased 27,400 grams of the direct material at $6.10 per gram. The direct materials purchases variance is computed when the materials are purchased. The materials price variance for January is:

2740 U

Herrod Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. The cost formula for catering supplies is $420 per month plus $102 per job plus $22 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in December to be 12 jobs and 122 meals, but the actual activity was 6 jobs and 105 meals. The actual cost for catering supplies in December was $3,620. The spending variance for catering supplies in December would be closest to:

278 U

Petrus Framing's cost formula for its supplies cost is $1,900 per month plus $10 per frame. For the month of March, the company planned for activity of 630 frames, but the actual level of activity was 633 frames. The actual supplies cost for the month was $8,610. The activity variance for supplies cost in March would be closest to:

30 U

Gipple Corporation makes a product that uses a material with the quantity standard of 7.3 grams per unit of output and the price standard of $6.00 per gram. In January the company produced 3,400 units using 24,870 grams of the direct material. During the month the company purchased 27,400 grams of the direct material at $6.10 per gram. The direct materials purchases variance is computed when the materials are purchased. The materials quantity variance for January is:

300 U

Bluemel Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $43,670 per month plus $2,879 per flight plus $10 per passenger. The company expected its activity in December to be 85 flights and 281 passengers, but the actual activity was 90 flights and 278 passengers. The actual cost for plane operating costs in December was $314,740. The plane operating costs in the flexible budget for December would be closest to:

305560

Taussig Snow Removal's cost formula for its vehicle operating cost is $1,880 per month plus $394 per snow-day. For the month of February, the company planned for activity of 13 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $7,250. The activity variance for vehicle operating cost in February would be closest to:

394 U

Dermody Snow Removal's cost formula for its vehicle operating cost is $2,920 per month plus $322 per snow-day. For the month of December, the company planned for activity of 16 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $8,350. The spending variance for vehicle operating cost in December would be closest to:

922 U

If the Deed Corporation evaluates managerial performance using residual income based on the corporate minimum required rate of return of 8%, what decision would be preferred by Edith Carolina and Michael Sanders?

Accept, accept

Suppose Deed Corporation evaluates managerial performance using return on investment. Edith Carolina, as president of the company, may view the opportunity for taking on the cosmetics line differently from Michael Sanders, manager of the Cosmetics Division. What action would each of them prefer with respect to the decision of whether to take on the new cosmetics line?

Accept, reject

Which of the following would be considered an operating asset in return on investment computations?

Accounts Receivable

Which of the following statements is true? 1. Move time is considered non-value-added time. 2. If the MCE is equal to 0.6, then 60% of the time a unit is in process is spent on activities that add value to the product. 3. A manager would generally like to see a trend indicating a decrease in setup time.

All are true

Which of the following statements is true? 1. The performance measures on a balanced scorecard tend to fall into four groups: financial measures, customer measures, internal business process measures, and learning and growth measures. 2. Financial measures such as ROI and residual income as well as operating measures may be included in a balanced scorecard. 3. A balanced scorecard contains both customer and internal business process performance measures because improvements in internal business process should result in improvements in customer satisfaction.

All are true

Which of the following statements is true? 1. The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity. 2. To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity. 3. Fixed costs should usually be included in performance reports because fixed costs are generally controllable

All true

Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same

An increase in operating assets.

Which of the following statements is true? 1. A quantity standard indicates how much of an input should be used to make a unit of product or provide a unit of service. 2. The standard quantity or standard hours allowed refers to the amount of the input that should have been used to produce the actual output of the period.

Both are true

All other things equal, which of the following would increase a division's residual income?

Decrease in average operating assets.

Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment (ROI) computations?

It eliminates the age of equipment as a factor in return on investment (ROI) computations.

Which of the following segment performance measures will decrease if there is an increase in the interest expense for that segment? Residual income and ROI

No and NO

Which of the following statements is true? 1. Queue time is considered non-value-added time. 2. Inspection Time is generally considered to be value-added time.

Only statement 1 is true

Which of the following statements is true? 1. If skilled workers with high hourly rates of pay are given duties that require little skill and call for lower hourly rates of pay, this will result in a favorable labor rate variance. 2. The standard labor rate per hour should not include any employment taxes. 3. When more hours of labor time are necessary to complete a job than the standard allows, the labor efficiency variance is unfavorable.

Only statement 3

A segment of a business responsible for both revenues and expenses would be called:

Profit center

Which of the following statements is true? 1. Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned. 2. An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed. 3. The activity variance for revenue is favorable if the revenue in the flexible budget exceeds the revenue in the static planning budget.

all of these are true

When tying compensation to the balanced scorecard, management must ensure that the performance measures have all the following characteristics except:

easily manipulated

A budget that is based on the actual activity of a period is known as a:

flexible budget

Which of the following statements is true? 1. When the activity measure is the number of units sold, the revenue variance is favorable if the average actual selling price is greater than expected. 2. A favorable spending variance occurs when the actual cost is less than the amount of the cost in the static planning budget. 3. A revenue variance is favorable if the actual revenue is greater than the revenue in the static planning budget.

only statement 1

Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of:

return on investment.

The production department should generally be responsible for materials price variances that resulted from:

rush orders arising from poor scheduling.

A favorable labor rate variance indicates that

the standard rate exceeds the actual rate.

If variable manufacturing overhead is applied on the basis of direct labor-hours and the variable overhead rate variance is favorable, then:

the standard variable overhead rate exceeded the actual rate.