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Exam 15: Performance Evaluation

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Question 41

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The research and development department of Apple Computers would likely be organized as:

A) A profit center.
B) A cost center.
C) A revenue center.
D) An investment center.

E) All of the above
F) A) and B)

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Question 42

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Jared expects to charge $60 per hour for his industrial maintenance business during the following year. He expects to reach 50,000 hours at that price. Jared's partner disagrees with the estimate and expects closer to 40,000 hours. What should Jared do when preparing the budget for the year?

A) Create a flexible budget showing a range of outcomes between 40,000 hours and 50,000 hours.
B) Create two master budgets, one at 50,000 hours and one at 40,000 hours.
C) Create only one budget at the more optimistic volume of 50,000 hours.
D) Create a volume budget based on actual performance.

E) A) and B)
F) A) and C)

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Question 43

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Indicate whether each of the following statements is true or false.Managerial performance can be evaluated by comparing actual amounts with standard amounts.Differences between standard and actual amounts are called variances.When the static budget is compared to a flexible budget based on actual volume of activity, any variances result from differences between standard and actual per unit amounts.If the actual sales price per unit is higher than the standard, a company's sales price variance is unfavorable.Differences between flexible budget costs and revenues and the actual results are price variances.

Monroe Corporation budgeted fixed costs of $250,000 for the current year. The company expected to make 20,000 units during the year. Actual fixed costs were $256,000, and Monroe actually made 22,000 units of product.Required:Calculate the spending variance relating to these fixed costs and indicate whether it is favorable or unfavorable.Calculate the fixed cost volume variance and indicate whether it is favorable or unfavorable. Explain why the variance is favorable or unfavorable.

The Electronics Division of Anton Company reports the following results for the current year: $\begin{array}{lrl}\text { Revenues } &\$ 800,000 \\\text { Operating expenses } & \$ 656,000 \\\text { Operating income } & \$ 144,000 \\\text { Operating assets } & \$ 1,200,000\end{array}$ Anton Company has set a target return on investment (ROI) of 11% for the Electronics Division. The Electronic Division's margin is:

Jones Company developed the following static budget at the beginning of the company's accounting period: $\begin{array}{lr}\text { Revenue ( } 8,000 \text { units) } & \$ 16,000 \\\text { Variable costs } & \underline{ 4,000} \\\text { Contribution margin } & \$ 12,00 \\\text { Fixed costs } & \underline{4,000 }\\\text { Net income } & \underline{\$ 8,000}\end{array}$ If actual production totals 8,200 units, the flexible budget would show total costs of:

Select the correct statement regarding flexible budgets.

The term that describes what occurs when a manager does what is in his/her best interests and not what is in the best interests of the company as a whole is known as:

The New Products Division of Testar Company, had operating income of $9,000,000 and operating assets of $45,800,000 during the current year. The New Products Division has developed a potential new product that would require $9,500,000 in operating assets and would be expected to provide $2,400,000 in operating income each year. Testar has set a target return on investment (ROI) of 19% for each of its divisions. Assuming that the new product is put into production, calculate the division's ROI.

Describe how a flexible budget is useful in planning for an organization.

Assuming actual volume is 10,000 units and planned volume is 12,000 units, the sales volume variance in units:

Indicate whether each of the following statements is true or false.A flexible budget can be viewed as an extension of a company's master budget.The master budget is a static budget because it is prepared for a single level of volume.Standards are established for a company's costs but not for the selling prices of its goods and services.If rent is budgeted at $34,000 for 10,000 units, rent would also be budgeted at $34,000 for 11,000 units.Flexible and static budgets use the same per-unit standard amounts for sales and variable costs.

To avoid suboptimization, many companies prefer to evaluate their investment centers using:

When would a variance be labeled as unfavorable?

Baker charges its customers $60 per hour. The chief operating officer expected that the company would provide 40,000 hours of service to clients. However, the vice president for marketing argues that the actual number of hours may range from 36,000 to 44,000 hours. Baker's standard variable cost is $32.50 per hour, and its standard fixed cost is $750,000.Required:Prepare flexible budgets for 36,000, 40,000, and 44,000 hours.

Volume variances are computed for which of the following costs?

Huang Company reported the following information for the current year: $\begin{array}{lr}\text { Sales } & \$ 870,000 \\\text { Average operating assets } & \$ 570,000\\\text { Margin }&10\%\end{array}$ The company's return on investment was: (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

The differences between the standard and actual amounts are called variances.

The New Products Division of Testar Company, had operating income of $8,000,000 and operating assets of $44,800,000 during the current year. The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Assuming that the new product is put into production, calculate the division's ROI.

Jacob is a department manager who recently instituted a new recognition program for his employees. He budgeted the cost of the new program at $10 per employee, but actual costs were $15 per employee. The cost associated with the recognition program would be considered which of the following kinds of cost?