Planning, Control & Analysis Units 16, 19 MCQ's Flashcards
Relevant information for product A follows:
What was the variable overhead spending variance for product A?
A. $4,000 unfavorable.
B. $4,000 favorable.
C. $2,250 unfavorable.
D. $2,250 favorable.
C. $2,250 unfavorable.
The variable overhead spending variance measures the accuracy of the estimates used to derive the application rate. It equals the product of the actual number of units of the overhead cost driver (hours) consumed and the application rate, minus the costs actually incurred. The formula is similar to that for the materials price or labor rate variance:
A corporation expected to sell 150,000 board games during the month of November, and the company’s master budget contained the following data related to the sale and production of these games:
Actual sales during November were 180,000 games. Using a flexible budget, the corporation expects the operating income for the month of November to be
A. $270,000
B. $510,000
C. $420,000
D. $225,000
C. $420,000
Revenue of $2,400,000 reflects a unit selling price of $16 ($2,400,000 ÷ 150,000 games). The contribution margin is $975,000, or $6.50 per game ($975,000 ÷ 150,000 games). Increasing sales will result in an increased contribution margin of $195,000 (30,000 games × $6.50). Assuming no additional fixed costs, net income will increase to $420,000 ($225,000 originally reported + $195,000).
Galax, Inc., had operating income of $5,000,000 before interest and taxes. Galax’s net book value of plant assets at January 1 and December 31 were $22,000,000 and $18,000,000, respectively. Galax achieved a 25% return on investment for the year, with an investment turnover of 2.5. What were Galax’s sales for the year?
A. $45,000,000
B. $20,000,000
C. $55,000,000
D. $50,000,000
D. $50,000,000
The capital (investment) turnover ratio equals sales divided by average invested capital. Sales equals the capital turnover ratio of 2.5 times average invested capital of $20,000,000 [($22,000,000 + $18,000,000) ÷ 2]. Galax’s sales are therefore $50,000,000.
In Year 1, a large domestic manufacturer produces all of its motors domestically and sells them internationally. The company’s management team is in the process of developing its Year 2 budget, and copper costs represent a significant line item in the budget. In Year 1, the company spent $1,000,000 in purchasing 250,000 pounds of copper. Economic data indicate that in Year 1 copper costs had a price index of 120.0, and expectations are that the index will increase to 126.0 in Year 2. Management anticipates a 5% increase in copper usage for Year 2. What amount represents the Year 2 budget for copper purchases?
A. $1,300,000
B. $1,050,000
C. $1,000,000
D. $1,102,500
D. $1,102,500
A price index is a measure of the price of a market basket of goods and services in one year compared with the price in a designated base year. By definition, the index for the base year is 100. Because the Year 1 index is 120 and the Year 2 index is expected to be 126, there’s an estimated (126 – 120) ÷ 120 = 5% increase in copper price. Hence, the expected price for 250,000 pounds of copper in Year 2 is $1,050,000 ($1,000,000 × 105%). Furthermore, management anticipates a 5% increase in copper usage for Year 2. Thus, Year 2 budget for copper purchases would be $1,102,500 ($1,050,000 × 105%).
The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances?
A. Indirect labor spending.
B. Labor rate.
C. Labor usage.
D. Direct labor spending.
C. Labor usage.
The labor usage (efficiency) variance is the variance attributable to a difference between the budgeted hours and the actual hours worked, times the standard hourly wage [(SQ – AQ) × SP or (SQ × SP) – (AQ × SP)].
The number of units that Mountain finished during December is
A. 5,100
B. 5,000
C. 3,000
D. 4,200
A. 5,100
The company will need 4,200 finished units to meet the sales estimate for December. In addition, 3,000 finished units (6,000 unit sales in January × 50%) should be in inventory at the end of December. The total requirement is therefore 7,200 units (4,200 + 3,000). Of these units, 2,100 (4,200 unit sales in December × 50%) should be available from November’s ending inventory. Consequently, production in December should be 5,100 units (7,200 – 2,100).
Which one of the following best identifies a profit center?
A. A large toy company.
B. A new car sales division for a large local auto agency.
C. The Information Technology Department of a large consumer products company.
D. The Production Operations Department of a small job-order machine shop company.
B. A new car sales division for a large local auto agency.
Management of a profit center is responsible for revenues and expenses but not invested capital. Of the four responsibility centers listed, a new car sales division for a large local auto agency is the only one that fits this description.
What is gap analysis in TQM?
A. Evaluating the minimum or maximum amount of shelf space required to maximize profits in retail stores.
B. Evaluating workers’ space requirements to optimize their work flow.
C. Conducting a quality audit.
D. Determining what is necessary to bring the practices of the organization closer to the quality leaders in its industry.
D. Determining what is necessary to bring the practices of the organization closer to the quality leaders in its industry.
The “gap” is the difference between best practices and the firm’s practices. TQM examines (benchmarks) the best in the industry and imitates them. The analysis includes establishing a database for developing a strategic quality improvement plan.
Fact Pattern: Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month’s estimated sales. There are 150,000 finished units in inventory on June 30. Each unit of finished product requires 4 pounds of direct materials at a cost of $1.20 per pound. There are 800,000 pounds of direct materials in inventory on June 30.
Assume Berol Company plans to produce 600,000 units of finished product in the 3-month period ending September 30, and to have direct materials inventory on hand at the end of the 3-month period equal to 25% of the use in that period. The estimated cost of direct materials purchases for the 3-month period ending September 30 is
A. $2,640,000
B. $2,400,000
C. $2,200,000
D. $2,880,000
A. $2,640,000
Production of 600,000 units will require 2,400,000 pounds of direct materials (600,000 units × 4 lbs.). In addition, ending inventory will be 25% of the period’s usage, or 600,000 pounds (2,400,000 × 25%). Thus, 3,000,000 total pounds will be needed. However, given 800,000 pounds in inventory, purchases will be only 2,200,000 pounds. At $1.20 per pound, the cost will be $2,640,000.
Assume that net operating income was $60,000 and that average invested capital was $600,000. For the year ended December 31, Rho’s residual income (loss) was
A. $150,000
B. $60,000
C. $(45,000)
D. $(30,000)
D. $(30,000)
Answer (D) is correct.
Rho’s residual income can be calculated as follows:
Assuming that King Products Corporation’s net income for the year ended June 30, Year 2, was $70,000 and there are no preferred stock dividends in arrears, King Products Corporation’s return on common equity was
A. 7.8%
B. 10.9%
C. 12.4%
D. 10.6%
D. 10.6%
The preferred stock dividend requirement is $10,000 ($200,000 par value × 5%), so the income available to common shareholders is $60,000 ($70,000 NI – $10,000). The return on common equity equals income available to common shareholders divided by the average common equity. Given that preferred equity was $200,000 at all relevant times, beginning and ending common equity was $550,000 ($750,000 total – $200,000) and $580,000 ($780,000 total – $200,000), an average of $565,000 [($580,000 + $550,000) ÷ 2]. The return on common equity was therefore 10.6% ($60,000 ÷ $565,000).
The number of tables to be produced by Rokat during August is
A. 1,440 tables.
B. 2,340 tables.
C. 1,900 tables.
D. 1,400 tables.
B. 2,340 tables.
The company will need 2,500 finished units for August sales. In addition, 840 units (2,100 September unit sales × 40%) should be in inventory at the end of August. August sales plus the desired ending inventory equals 3,340 units. Of these units, 40% of August’s sales, or 1,000 units, should be available from beginning inventory. Consequently, production in August should be 2,340 units.
Which of the following statements regarding benchmarking is false?
A. Benchmarking, in practice, usually involves formation of benchmarking teams.
B. Benchmarking is an ongoing process that involves quantitative and qualitative measurement of the difference between the organization’s performance of an activity and the performance by the best in the world or the best in the industry.
C. The benchmarked organization against which a firm is comparing itself must be a direct competitor.
D. Benchmarking involves continuously evaluating the practices of best-in-class organization and adapting processes to incorporate the best of these practices.
C. The benchmarked organization against which a firm is comparing itself must be a direct competitor.
Benchmarking is an ongoing process that involves quantitative and qualitative measurement of the difference between the organization’s performance of an activity and the performance by a best-in-class organization. The benchmarked organization need not be a direct competitor. The important consideration is that it be an outstanding performer in its industry.
XYZ Company is using flexible budgeting to analyze its operating performance for this year. It concludes that the flexible budget variance for sales revenue is $20,000 unfavorable and the sales-volume variance is $22,000 favorable. Which of the following is most likely to be true based on this information?
A. II and III only.
B. I and II only.
C. I only.
D. All of them.
B. I and II only.
Sales-volume variances are the differences between the flexible budget and the master (static) budget amounts. Flexible budget variances are the differences between the actual revenues and costs for the period and the amounts that should have been earned and expended given the achieved level of production. They are the differences between the actual results and the flexible budget amounts. For example, a sales-volume revenue variance is favorable if actual units sold exceed budgeted unit sales. An unfavorable flexible budget revenues variance means that actual revenues are less than the amount that should have been earned at a given level of production. Thus, the actual unit price is lower than the budgeted unit price. Because the given information applies only to sales revenues, no conclusion is possible about the cost of goods sold.
Which measures would be useful in evaluating the performance of a manufacturing system?
A. II and III only.
B. I and II only.
C. I and III only.
D. I, II, and III.
D. I, II, and III.
Answer (D) is correct.
Throughput time is the average amount of time required to convert raw materials into finished goods ready to be shipped. Total setup time as a percentage of total production time provides valuable information for scheduling. The number of rework items as a percentage of total number of units completed provides efficiency and quality control data. These are all important factors in evaluating the performance of a manufacturing system.
A company is preparing its cash budget for the coming month. All sales are made on account. Given the following:
What is the expected cash balance of the company at the end of the coming month?
A. $45,000
B. $15,000
C. $40,000
D. $70,000
C. $40,000
Collections on account equal beginning accounts receivable of $180,000, plus sales on account of $800,000, minus budgeted ending accounts receivable of $210,000, or $770,000. The beginning cash balance of $50,000, plus cash collections on account of $770,000, minus budgeted cash disbursements of $780,000 equals $40,000. Depreciation of $25,000 is excluded because it is a noncash expense.
Last year a segment of Dickson Company had the following sales, assets, and operating income:
What is the segment’s asset turnover?
A. 2.5 times.
B. 10 times.
C. 2 times.
D. 4 times.
A. 2.5 times.
Asset turnover is the ratio of sales to average assets. Thus, the segment’s asset turnover is 2.5 times ($500,000 ÷ $200,000).
Fact Pattern: Streeter Company produces plastic microwave turntables. Sales for the next year are expected to be 65,000 units in the first quarter, 72,000 units in the second quarter, 84,000 units in the third quarter, and 66,000 units in the fourth quarter. Streeter usually maintains a finished goods inventory at the end of each quarter equal to one half of the units expected to be sold in the next quarter.
How many units should Streeter produce in the second quarter?
A. 72,000
B. 78,000
C. 75,000
D. 84,000
B. 78,000
Streeter’s required production for the second quarter can be calculated as follows:
Due to deteriorating economic conditions, Pine Hill Wood Products has now decided that its cash forecast should include a bad debt adjustment of 2% of credit sales, beginning with sales for the month of April. The 5% collection in the fourth month should be reduced to reflect the bad debt. Because of this policy change, the total expected cash inflow in April related to sales made in April will
A. Decrease by $1,530.00.
B. Decrease by $1,440.00.
C. Decrease by $1,260.00.
D. Be unchanged.
D. Be unchanged.
Because the bad debt adjustment of 2% of credit sales begins with sales for the month of April, the estimated collections in July related to April credit sales will be reduced by $1,440 ($80,000 × 90% × 2%). Estimated collections in the month of April will be unchanged.
Wexford Co. has a subunit that reported the following data for Year 1:
Asset (investment) turnover
The imputed interest rate is 12%. What is the division residual income for Year 1?
A. $30,000
B. $60,000
C. $0
D. $20,000
C. $0
Residual income is the excess of operating income over a target return on invested capital. Because return on sales is the ratio of operating income to sales, Wexford has operating income of $60,000 ($750,000 sales × 8% return on sales). The target return on invested capital equals invested capital times the imputed interest rate. Invested capital is $500,000 ($750,000 sales ÷ 1.5 asset turnover), so the target return on capital is $60,000 ($500,000 capital × 12% imputed interest). Thus, Wexford’s residual income is $0 ($60,000 operating income – $60,000 target return on capital).
Controllable revenue would be included in a performance report for a
A. Yes No
A company manufactures a product using one material per unit. The following information for the upcoming budget year is available:
What amount is the total direct materials purchasing budget?
A. $67,500
B. $80,000
C. $77,500
D. $72,500
C. $77,500
The direct materials budget is concerned with both units and input prices. The number of finished goods to be produced is derived from the sales budget: 16,000 finished goods to be produced = 14,500 units to be sold + 3,000 ending finished goods – 1,500 beginning finished goods. Then, the number of raw (direct) materials to be purchased is calculated in the direct materials budget: 15,500 direct materials to be purchased = 16,000 units needed for production + 1,500 ending inventory units – 2,000 beginning inventory units. Thus, the total amount of direct material to be purchased is $77,500 (15,500 direct materials to be purchased × $5 cost per unit).
Data regarding Jack Company’s budget follow:
According to the production budget, total direct labor cost is
A. $77,000
B. $58,500
C. $70,000
D. $63,000
D. $63,000
Finished goods to be produced equal 4,500 units (5,000 budgeted sales + 1,000 units in ending inventory – 1,500 units in beginning inventory). Direct labor hours required equal 9,000 (4,500 units × 2). Thus, direct labor cost is $63,000 (9,000 hours × $7).
Fact Pattern: Superflite expects April sales of its deluxe model airplane, the C-14, to be 402,000 units at $11 each. Each C-14 requires three purchased components shown below.
Superflite’s C-14 production budget for April should be based on the manufacture of
A. 390,000 units.
B. 424,000 units.
C. 402,000 units.
D. 400,000 units.
D. 400,000 units.
Sales are expected to be 402,000 units in April. The beginning inventory is 12,000 units, and the ending inventory is expected to be 10,000 units, a decline in inventory of 2,000 units. Thus, the budget should be based on production of 400,000 units (402,000 units to be sold – 12,000 units BI + 10,000 units EI).
Vested, Inc., made some changes in operations and provided the following information:
What percentage represents the return on investment for Year 3?
A. 25%
B. 10%
C. 22.5%
D. 20.83%
A. 25%
Vested’s Year 3 return on investment can be calculated as follows:
Return on investment (ROI) is a very popular measure employed to evaluate the performance of corporate segments because it incorporates all of the major ingredients of profitability (revenue, cost, investment) into a single measure. Under which one of the following combinations of actions regarding a segment’s revenues, costs, and investment would a segment’s ROI always increase?
D. Increase Decrease Decrease
Fact Pattern: The following information concerns Montero Corp.
Collections from Montero Corp.’s customers are normally 70% in the month of sale, and 20% and 9%, respectively, in the 2 months following the sale. The balance is uncollectible. Montero takes full advantage of the 2% discount allowed on purchases paid for by the 10th of the following month. Purchases for May are budgeted at $60,000, and sales for May are forecasted at $66,000. Cash disbursements for expenses are expected to be $14,400 for the month of May. Montero’s cash balance at May 1 was $22,000.
What are Montero’s expected cash collections during May?
A. $67,200
B. $61,800
C. $46,200
D. $66,000
A. $67,200
The expected cash collections during any month equal 9% of the sales of two months before, 20% of the sales of one month before, and 70% of the current month’s sales.
The following data are available for July:
What is the sales volume variance for July?
A. $12,000 unfavorable.
B. $5,000 favorable.
C. $12,600 unfavorable.
D. $4,600 favorable.
B. $5,000 favorable.
The sales volume variance is the difference between the actual volume and the budgeted volume in units, times the budgeted contribution margin per unit.
A company uses a standard costing system. The production budget for Year 1 was based on 200,000 units of output. Each unit requires 2 standard hours of manufacturing labor for completion. Total overhead was budgeted at $900,000 for the year, and the budgeted fixed overhead rate was $1.50 per direct manufacturing labor hour. Both variable and fixed overheads are allocated to the product based on direct manufacturing labor hours. The actual data for Year 1 are as follows:
What is the amount of unfavorable variable overhead efficiency variance?
A. $21,750
B. $55,000
C. $43,500
D. $33,250
A. $21,750
The variable overhead efficiency variance is the difference between the standard hours allowed for actual production and the actual quantity of hours used, times the standard variable overhead (VOH) rate. In this case, the standard hours allowed for the actual production is 396,000 hours (198,000 units produced × 2 standard hours of manufacturing labor per unit). The total budgeted variable overhead cost for Year 1 is $300,000 [$900,000 total budgeted overhead costs – (200,000 × 2 × $1.50) total budgeted fixed overhead cost]. Thus, the VOH rate is $0.75 [$300,000 total budgeted variable overhead cost ÷ (200,000 × 2) total budgeted variable overhead hours]. The unfavorable variable overhead efficiency variance is $21,750 [(396,000 standard hours allowed for the actual production – 425,000 actual quantity of hours used) × $0.75 VOH rate].
