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Exam 8: Performance Evaluation

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Question 1

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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.______

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The amount of a sales volume variance is...

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Question 2

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A static budget is one that shows estimated revenues and costs at multiple activity levels.

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Question 3

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The Ferguson Company estimated that October sales would be 100,000 units with an average selling price of $6.00.Actual sales for October were 105,000 units,and average selling price was $5.95. The sales revenue flexible budget variance was:

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

Stafford Company prepared a static budget for a production and sales volume of 10,000 units. $\begin{array}{|l|c|c|}\hline & & \text { Static Budget } \\\hline \text { Number of units } && \$ \quad 10,000\\\hline&\text { Per unit} \\&\text { standards}\\\hline \text { Sales revenue } & \$ 65.00&\$650,000 \\\hline \text { Variable manufacturing costs: } & & \\\hline \text { Materials } & \$ 11.00&110,000 \\\hline \text { Labor } & \$ 9.00&90,000\\\hline \text { Overhead } & \$ 4.20 & 42,000 \\\hline \text { Variable general, selling, and } \\\text { administrative costs }& \$ 11.00 & 110,000 \\\hline \text { Contribution margin } & & \$ 298,000 \\\hline \text { Fixed costs } & & \\\hline \text { Manufacturing overhead } & & 100,800 \\\hline\text { General, selling, and administrative } \\\text { costs }&&45,000\\\hline \text { Net income } & & \$152,200 \\\hline\end{array}$ What is the net income if 9,000 units are sold?

Lax standards make allowances for normal material waste and spoilage.

Douglas Company provided the following budgeted information for the current year. $\begin{array} { l r r } \text { Sales price } & \$ 50 \text { per unit } \\\text { Variable manufacturing cost } & 32 \text { per unit } \\\text { Fixed manufacturing cost } & \$ 100,000 \text { total } \\\text { Fixed selling and administrative cost } & \$ 40,000 \text { total }\end{array}$ Douglas predicted that sales would be 20,000 units,but the sales actually were 22,000 units.The actual sales price was $48.50 per unit,and the actual variable manufacturing cost was $33 per unit.Actual fixed manufacturing cost and fixed selling and administrative cost were $104,000 and $39,000,respectively. Required: (a)Using the form below,prepare a flexible budget,show actual results,calculate the flexible budget variances,and indicate whether the variances are favorable (F)or unfavorable (U). (b)Assess the company's performance compared to the flexible budget.

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:

Indicate whether each of the following statements is true or false. A variance is a difference between an expected amount and a standard amount.______ When actual sales revenue exceeds the expected revenue,a company has a favorable sales variance.______ A cost variance is considered to be unfavorable when actual costs are less than standard costs.______ A company can calculate variances for both revenues and costs.______ Flexible budgets can be used for planning,but not for performance evaluation.______

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00.Actual sales for April were 149,000 units,and average selling price was $6.12. The sales revenue flexible budget variance was:

Burruss Company developed a static budget at the beginning of the company's accounting period based on an expected volume of 8,000 units: $\begin{array} { l c } & \text { Per Unit } \\\text { Revenue } & \$ 4.00 \\\text { Variable costs } & \underline{1.50} \\\text { Contribution margin } & \$ 2.50 \\\text { Fixed costs } & \underline{ 2.00} \\\text { Net incone } & \underline{\$ 0.50 }\\\end{array}$ If actual production totals 10,000 units,which is within the relevant range,the flexible budget would show fixed costs of:

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.

When would a sales variance be listed as favorable?

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:

Describe several factors that should be considered in establishing standards for use with a standard costing system.

Select the correct statement regarding general,selling,and administrative (GS&A) costs.

Static and flexible budgets are similar in that:

The sales volume variance is the difference between the:

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

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