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Exam 8: Performance Evaluation

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Question 71

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Which of the following is an incorrect statement regarding variances?

A) A variance is favorable when expected sales are more than actual sales.
B) A variance is a difference between budgeted and actual amounts.
C) A variance can be calculated for both revenues and expenses.
D) A variance can be both favorable and unfavorable.

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

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Question 72

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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 73

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

A benefit of using a standard cost system is that it can boost morale and motivate employees,if properly maintained.

Sales volume variances are attributable to differences between planned and actual activity volumes,as well as differences in selling price.

Newton Company's management accountant prepared the following variance report for management: Required: 1)Identify which manager (if any)would likely be held responsible (at least prior to further investigation)for each of the following variances: (a)Direct material price variance (b)Direct materials usage variance (c)Direct labor price variance (d)Direct labor usage variance (e)Fixed cost spending variance (f)Fixed cost volume variance 2)Provide at least two possible explanations for each of the following variances: the direct materials price variance and the direct labor usage variance.

Grenada Company estimates sales of 15,000 units for the upcoming period.At this sales volume its budgeted income is as follows: $\begin{array}{l}\begin{array}{|l|}\hline \\\hline \text {Sales}\\\hline \text {Less variable costs:}\\\hline \text {Manufacturing costs}\\\hline \text {Selling and administrative costs}\\\hline \text {Contribution margin}\\\hline \text {Less fixed costs:}\\\hline \text {Manufacturing costs}\\\hline \text {Selling and administrative costs}\\\hline \text { Net income}\\\hline \end{array}\begin{array}{ll|}\hline\text { Per Unit }\\\hline \$ & 60 \\\hline & \\\hline \$ & 30 \\\hline \$ & 10 \\\hline \$ & 20 \\\hline & \\\hline & \\\hline & \\\hline & \\\hline\end{array}\begin{array}{ll|}\hline {\text { Total }} \\\hline \$ & 900,000 \\\hline & \\\hline & 450,000 \\\hline & \underline {150,000} \\\hline \$ & 300,000 \\\hline & \\\hline & 125,000 \\\hline & \underline {155,000} \\\hline \$ & 20,000\\\hline\end{array}\end{array}$ During the period the company actually produced and sold 18,000 units. Required: Prepare a flexible budget based on 18,000 units.

Standard cost systems facilitate the management practice known as:

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

Flexible budget amounts for variable costs and revenues come from multiplying standard per unit amounts by the planned volume of production.

The standard amount of materials required to make one unit of Product Q is 4 pounds.Tusa's static budget showed a planned production of 3,800 units.During the period the company actually produced 4,100 units of product.The actual amount of materials used averaged 3.9 pounds per unit.The standard price of material is $1 per pound.Based on this information,the materials usage variance was:

Indicate whether each of the following statements is

Cruz Company established a direct labor standard of 0.5 hour per unit at $12 per hour for one of its products.In April,Cruz produced 16,000 units and used 8,100 direct labor hours. 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?

A cost variance is unfavorable if actual cost exceeds standard cost.

How are managers likely to respond if variances are used to punish managers?

Indicate whether each of the following statements is

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

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

Select the incorrect statement regarding flexible budgets.

Which of the following can reduce the amount of employees' budget gamesmanship?