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Exam 8: Performance Evaluation

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Question 21

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What are examples of budget gamesmanship that may occur in a company, and how can the gamesmanship be reduced?

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Budget gamesmanship in...

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Question 22

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Select the correct statement from the following, assuming Carmichael Company had a favorable direct materials price variance of $3,000 and an unfavorable direct materials usage variance of $2,000.

A) The total direct materials variance is $1,000 unfavorable.
B) The total direct materials variance is $5,000 favorable.
C) The total direct materials variance is $5,000 unfavorable.
D) The total direct materials variance is $1,000 favorable.

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

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Question 23

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White Company budgeted for $200,000 of fixed overhead cost 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 fixed overhead cost volume variance is:

Which of the following income statement formats is most commonly used with flexible budgeting?

Which of the following is a difference between a static and a flexible budget?

For performance evaluation, the amount of costs actually incurred should be compared to the costs that would have been incurred at the actual volume of activity rather than at the planned volume of activity.

Which of the following is not an example of budget gamesmanship that may occur in a company?

Which of the following reason(s) cause flexible budgets to be useful planning tools?

Two budgeting games sometimes played by employees are building in budget slack and making the numbers.

Which of the following applications is most suited for developing flexible budgets?

The following static budget is provided: What will be the overall volume variance if 12,000 units are produced and sold? $\begin{array} { | l | r | r | } \hline & \text { Per Unit } & { \text { Total } } \\\hline \text { Sales } & \$ 60 & \$ 900,000 \\\hline \text { Less variable costs: } & & \\\hline \text { Manufacturing costs } & 30 & 450,000 \\\hline \text { Selling and administrative costs } & \underline { 10 } & \underline { 150,000 } \\\hline \text { Contribution margin } & \$ 20 & \$ 300,000 \\\hline \text { Less fixed costs: } & & \\\hline \text { Manufacturing costs } & & 75,000 \\\hline \text { Selling and administrative costs } & & \underline { 125,000 } \\\hline \quad \text { Total fixed costs } & & \underline { 200,000 } \\\hline \text { Net income } & & \$ 100,000 \\\hline & & \\\hline\end{array}$

The Russell Company provides the following standard cost data per unit of product: During the period, the company produced and sold 22,000 units incurring the following costs: The direct material usage variance was: $\begin{array} {| l|l| }\hline\text { Direct material ( } 3 \text { gallons }(a) \$ 6 \text { per gallon) }&\$18.00\\\hline\text { Direct labor ( } 2 \text { hours (a) } \$ 10 \text { per hour) }&\$20.00\\\hline\end{array}$ $\begin{array} {| l|l| }\hline \text { Direct material}&68,000 \text { gallons } @ \$ 5.90 \text { per gallon }\\\hline\text { Direct labor }&45,500 \text { hours } a \$ 9.75 \text { per hour }\\\hline\end{array}$

Southern Company established a direct labor standards of 0.5 hour per unit at $12 per hour for one of its products. In March, Southern used 12,000 direct labor hours, and the total amount paid to direct labor employees was $143,400.Required: Based on this information, (a) Which variance can you calculate? (b) What is the dollar amount of the variance? (c) Is the variance favorable or unfavorable? (d) Do you consider the variance to be sufficiently material that managers should investigate to discover the cause of the variance?

To assess the importance of a variance, managers should consider, not just the materiality of the amount, but also the type of variance being analyzed.

Standards that do not allow for normal down time, waste of materials, or machine breakdowns are known as:

Global Company makes a product that is expected to use 2.2 pounds of material per unit of product. The material has a standard cost of $2 per pound. Global actually used 2.3 pounds of material per unit of product made in January. The actual cost of material was $1.95 per pound. Based on this information alone, the materials variances for the January production would be:

When would a cost variance be listed as unfavorable?

Indicate whether each of the following statements is true or false.The amount of a sales volume variance is the difference between the static budget and a flexible budget based on actual volume.The sales volume variance measures managers' effectiveness in achieving the planned sales price for the company's products.Marketing managers are usually held responsible for the sales volume variance.If the planned sales volume was 25,000 units and the actual sales volume was 25,500 units, the sales volume variance was favorable.For marketing managers, "making the numbers" refers to reaching the budgeted sales volume.

The Landrum Company provides the following standard cost data per unit of product: Landrum anticipated that they would produce and sell 24,000 units. During the period, the company produced and sold 25,000 units incurring $210,000 of variable overhead costs.The variable overhead flexible budget variance was: $\begin{array} { | l | l | } \hline \text { Variable overhead } & \$ 8.00\\\hline\end{array}$

The Broaddus Company has requested a performance report that reports both sales activity variances and flexible budget variances. The following table of information is provided: Required: 1) Compute and enter variances in columns 3 and 6. In column 3, enter the variance (difference) between column 2 and column 5; in column 4, label the variance as favorable (F) or unfavorable (U). In column 6, enter the variance between columns 5 and 8, and in column 7 indicate whether this variance is favorable or unfavorable.2) Which column contains sales volume variances, and which column contains flexible budget variances? 3) Comment on this company's performance.