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Exam 15: Performance Evaluation

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Question 61

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Sanford Company reported the following information for the current year: $\begin{array}{lc}\text { Sales } & \$ 880,000 \\\text { Average operating assets } & \$ 475,000 \\\text { Desired ROI } & 10\%\\\text { Het income } & \$ 90,000\end{array}$ Required:Based on this information, calculate the company's residual income.

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Question 62

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An organizational unit of a business that incurs costs and generates revenues is known as a(n) :

A) Cost center.
B) Sales center.
C) Profit center.
D) Investment center.

E) B) and D)
F) A) and B)

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Question 63

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The following standard cost card is provided for Navid Company's Product A: $\begin{array}{l}\text { Direct material (2 lbs. ( } \$ 5.00 \text { per lb.) }&\$10.00\\\text { Direct labor (1 hr @ \$5.00 per hr.) } &5.00\\\text { Variable overhead (1 hr. @ \$4.00 per hr.) } &4.00\\\text { Fixed overhead (1 hr. @ } \$ 2.00 \text { per hr.) } &\underline{2.00}\\\text { Total standard cost per unit }&\underline{\$21.00}\end{array}$ The fixed overhead rate is based on total budgeted fixed overhead of $15,000. During the period, the company produced and sold 5,300 units at the following costs: Direct material 15,000 pounds @ $4.50 per pound Direct labor 5,050 hours @ $5.00 per hour Overhead $29,970The standard manufacturing cost per unit is $27.00. What is the actual manufacturing cost per unit? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

A disadvantage of decentralization is that it fails to motivate managers to improve the productivity of their division.

Static and flexible budgets are similar in that:

Jones Company developed the following static budget at the beginning of the company's accounting period: $\begin{array}{lr}\text { Revenue ( } 8,100 \text { units) } & \$ 16,200 \\\text { Variable costs } & \underline{ 4,050} \\\text { Contribution margin } & \$ 12,150 \\\text { Fixed costs } & \underline{4,050 }\\\text { Net income } & \underline{\$ 8,100}\end{array}$ If actual production totals 8,500 units, the flexible budget would show total costs of:

Joseph Company has an investment in assets of $1,003,000, operating income that is 10% of sales, and an ROI of 17%. From this information the amount of operating income would be:

White Company budgeted fixed overhead costs of $200,000 and volume of 40,000 units. During the year, the company produced and sold 39,000 units and spent $210,000 on fixed overhead.The spending variance relating to the fixed overhead cost is:

The following static budget is provided: $\begin{array}{lc}\text { Units }& \underline{20,000}\text{Units}\\\text {Sales}&\$ 200,000\\\text {Less variable costs:}\\\text {Manufacturing costs}&\$70,000 \\\text {Selling and administrative costs}& \underline{ \$ 40,000 }\\\text { Contribution margin } & \$ 90,000 \\\text { Less fixed costs: } & \\\text { Manufacturing costs } & \$ 22,000 \\\text { Selling and administrative costs } & \underline{\$ 17,000} \\\text { Net income } & \underline{\$ 51,000}\end{array}$ What will budgeted net income equal if 21,000 units are produced and sold? (Do not round intermediate calculations.)

The following static budget is provided: $\begin{array}{lc}\text { Units }& \underline{24,000}\text{Units}\\\text {Sales}&\$ 288,000\\\text {Less variable costs:}\\\text {Manufacturing costs}&\$ 81,600 \\\text {Selling and administrative costs}& \underline{ \$ 45,600 }\\\text { Contribution margin } & \$ 160,800 \\\text { Less fixed costs: } & \\\text { Manufacturing costs } & \$ 43,200 \\\text { Selling and administrative costs } & \underline{\$ 32,400} \\\text { Net income } & \underline{\$ 85,200}\end{array}$ What will budgeted net income equal if 22,000 units are produced and sold? (Do not round intermediate calculations.)

Which of the following would increase residual income? (Assume all other things are equal)

The following standard cost card is provided for Navid Company's Product A: $\begin{array}{l}\text { Direct material (2 lbs. ( } \$ 5.00 \text { per lb.) }&\$10.00\\\text { Direct labor (1 hr @ \$8.00 per hr.) } &8.00\\\text { Variable overhead (1 hr. @ \$3.00 per hr.) } &3.00\\\text { Fixed overhead (1 hr. @ } \$ 2.00 \text { per hr.) } &\underline{2.00}\\\text { Total standard cost per unit }&\underline{\$23.00}\end{array}$ The fixed overhead rate is based on total budgeted fixed overhead of $12,000. During the period, the company produced and sold 5,800 units at the following costs:Direct material 12,200 pounds @ $4.80 per poundDirect labor 5,950 hours @ $8.00 per hourOverhead $29,920 The standard manufacturing cost per unit is $23.00. What is the actual manufacturing cost per unit? (Do not round intermediate calculations.)

Distinguish between static and flexible budgets. Give an example of how flexible budgets can be used.

In an optimal responsibility accounting system, managers are evaluated on only the revenues and costs that are under their control.

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 residual income for the division.

Grenada Company estimates sales of 15,000 units for the upcoming period. At this sales volume its budgeted income is as follows: During the period the company actually produced and sold 18,000 units.Required:Prepare a flexible budget based on 18,000 units.

Campbell Candy Corporation desires a 13% return on investment (ROI) on all operations. The following information was available for the company for the current year: $\begin{array}{llr} \text { Sales } &\$16,000\\ \text { Operating income} &\$4,200\\ \text { Turnover } &0.5\end{array}$ What is the corporation's ROI? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

If the master budget prepared at a volume level of 10,000 units includes direct labor of $10,000, a flexible budget based on a volume of 11,000 units would include direct labor of $10,000.

When would a cost variance be listed as unfavorable?

Suboptimization refers to actions taken by a manager that are in the best interest of the firm as a whole but not in his/her own best interest.