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Exam 8: Performance Evaluation

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Question 41

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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 includes introducing...

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Question 42

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

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Question 43

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Indicate whether each of the following statements is true or false. A company's standard costs may need to be reevaluated when there is a change in the training and experience level of the workforce.______ Standard costs are the basis for preparing flexible budgets but not static budgets.______ Standard costing focuses managerial attention on operations that are not functioning normally.______ Standard costing does not fit with the practice of management by exception.______ Standard costs should not serve as benchmarks for evaluating performance.______

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 volume variance was:

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

$\begin{array}{lcc}\text { Item to Classify } &\text { Standard } &\text {Actual }\\\text { Sales volume } & 100,000 \text { units } &96,000 \text { units }\\\text { Sales price } & \$ 4 \text { per unit }&\$3.90 \text { per unit } \\\text { Material usage } & 40,000 \text { gallons } &42,000 \text { gallons }\\ \text { Labor price } & 12.50\text { per hour }&12.45 \text { per hour }\end{array}$ The sales volume variance was:

Sometimes employees will deliberately overstate the amount of materials and/or labor that should be required to complete a job.The difference between inflated and realistic standards is known as:

$\begin{array} { l r c } \text { Item to Classify } & \text { Starddard } & \text { Actual } \\\text { Sales Reveruse } & 820,000 & 835,000 \\\text { Wages } & 125,000 & 128,000 \\\text { S\&A Expenses } & 400,000 & 408,000 \\\text { Cost of Goods Sold } & 608,000 & 600,000\end{array}$ The sales revenue flexible budget variance was:

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.______

Indicate whether each of the following statements is true or false. A favorable variance may indicate the existence of unfavorable conditions.______ Managers should be praised or punished based on variances.______ Budget slack exists when performance standards are set at an ideal,unachievable level.______ Establishing standards is the least difficult aspect of using a standard cost system.______ A standard is the amount a price,cost,or quantity should be.______

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 volume variance was:

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

$\begin{array}{lcc}\text { Item to Classify } &\text { Standard } &\text {Actual }\\\text { Sales volume } & 100,000 \text { units } &96,000 \text { units }\\\text { Sales price } & \$ 4 \text { per unit }&\$3.90 \text { per unit } \\\text { Material usage } & 40,000 \text { gallons } &42,000 \text { gallons }\\ \text { Labor price } & 12.50\text { per hour }&12.45 \text { per hour }\end{array}$ All of the following variances are unfavorable except?

Timberlake Company planned for a production and sales volume of 12,000 units.However,the company actually makes and sells 13,000 units. $\begin{array}{lrrr}&\text { Per unit}\\&\text { standards}&\text { Static Budget}&\text { Flexible Budget}\\\text { Number of units } & & 12,000 & 13,000 \\\text { Sales revenue } & \$ 65.00 & \$ 780,000 & \$ 845,000 \\\text { Variable manufacturing costs: } & & & \\\text { Materials } & \$ 11.00 & \underline{132,000} & \underline{143,000 }\\\text { Labor } & \$ 9.00 & 108,000& 117,000\\\text { Overhead } & \$ 4.20 & 50,400 & 54,600\\\text { Variable general, selling, and }\\ \text { administrative costs } & \$ 11.00 & 132,000& 143,000 \\\text { Contribution margin } & & \$ 357,600 & \$ 387,400\\\text { Fixed costs }\\\text {Manufacturing overhead}&&100,800&100,800\\\text { General, selling, and}\\\text { administrative costs } & \underline{ 45,000 }& \underline{ 45,000 }\\\text { Net income } & \underline{\$ 211,800} & \underline{ \$ 241,600}\end{array}$ What was the sales volume variance?

Management by exception means that only unfavorable cost variances are investigated.

When would a sales price variance be listed as unfavorable?

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 spending variance is:

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

The sales volume variance is the difference between sales revenue on the static budget and sales revenue on the flexible budget.

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.