A flexible budget is a. Appropriate for control of factory overhead but not for control of direct materials and direct labor. b. Appropriate for control of direct materials and direct labor but not for control of factory overhead. c. Not appropriate when costs and expenses are affected by fluctuations in volume. d. Appropriate for any level of activity.
> Refer to the information in Exercises 14-40 and 14-41. Required a. What is the division’s residual income before considering the project? b. What is the division’s residual income if the asset is purchased? c. What is the division’s residual income if th
> Refer to the data in Exercise 14-37. Required Evaluate the performance of the two divisions assuming Houghton Chemicals uses economic value added (EVA). Exercise 14-37:
> Refer to the data in Exercises 14-24, 14-28, and 14-32. The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&D expenditures (which are included in SG&A) for the year
> Refer to the data in Exercise 14-33. Required Evaluate the performance of the two divisions assuming Lasky Manufacturing uses economic value added (EVA). Exercise 14-33:
> The following data are available for two divisions of Ryan Enterprises: The cost of capital for the company is 7 percent. Ignore taxes. Required a. If Ryan measures performance using ROI, which division had the better performance? b. If Ryan measures per
> What is the coordinating role of budgeting?
> Refer to the information in Exercise 14-24. Information on the division assets in the three regions of Lauderdale Corporation follows: Required Compute the division ROI for each of the three regions. How have these regions performed? Exercise 14-24:
> The following partial financial information (in thousands of dollars) is available for Thole, Inc.: Corporate overhead costs at Thole are allocated to divisions based on relative sales. Required a. Complete the income statements for both divisions and th
> Refer to Exercise 14-25. The results for year 2 have just been posted: Required Compute divisional operating income for the two divisions. How have these divisions performed? Exercise 14-25:
> Owen Audio shows the following information for its two divisions for year 1. Required Compute divisional operating income for the two divisions. Ignore taxes. How have these divisions performed?
> Refer to the data in Exercise 13-54 and in Exhibits 13.20 and 13.21. Required To what level or levels would funding for Product Development Group have to drop such that one, but only one, of the PDG Areas received no funding? Explain. Exercise 13-54:
> Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performa
> Chatsworth Theatre Group (CTG) is a not-for-profit organization that stages plays and other performances in a medium-sized city. Ticket revenues cover a portion of the operating costs, but CTG also relies on donations from local donors. In preparing the
> Gladstone Mini-Golf operates in a tourist area. The population grows significantly in the summer but is relatively small the rest of the year. For that reason, the business operates only during the roughly four-month (125-day) period from mid-May to mid-
> A friend tells you that the Business Application “The Risks of Focusing on Efficiency” demonstrates “that trying to achieve efficient operations is not a good idea.” Do you agree? Explain.
> If customers are satisfied, they will buy your products and profits will increase. Therefore, you only need to measure profit. Comment.
> What problems might arise if a firm relies solely on management estimates in preparing the master budget?
> Consider a class you are taking (perhaps cost accounting) or have taken in the past. Was your evaluation based on a single measure of performance (a final exam, for example) or did the instructor use multiple measures of performance (perhaps a quiz, midt
> Consider the Business Application “A New Strategy for an Old Business.” Prior to the internet, the The New York Times (and other papers) offered news, a crossword puzzle, recipes, and so on. They are also offered in the newer digital model of the paper.
> Consider a locally owned coffee shop, a Starbucks store, and a retail gas station that offers fresh coffee in its convenience stores. Characterize these stores according to the Porter strategy framework.
> Consider the Business Application “Changes in Bank Distribution Channels—a Mix Variance Interpretation.” In what ways would the mix variance described there be similar to the sales mix and production mix variances described in the chapter? In what ways w
> Consider a firm in the “sharing economy,” such as Uber, Lyft, or Airbnb. Do you think they would benefit by computing and evaluating (1) market share and industry volume variances; (2) sales mix and sales quantity variances; and (3) production mix and yi
> What are the three elements of a management control system?
> What does dysfunctional decision making refer to?
> A business school dean asks you for help in understanding the school’s inability to meet its budget. What are some of the variances you think might be important to consider? Why?
> What are the advantages of decentralization? What are some major disadvantages of decentralization?
> Why is performance measurement an important component of a management control system in a decentralized organization?
> What does decentralization mean in the context of a management control system?
> What is the difference among a firm’s value proposition, its mission, and its mission statement?
> How is benchmarking used?
> What is benchmarking?
> Why do effective performance evaluation systems measure different things at different levels in the organization?
> A balanced scorecard is a set of two or more performance measures. Do you agree? Why or why not?
> How do companies evaluate their own performance in getting workers involved and committed?
> Why measure delivery performance?
> There is no reason to investigate favorable variances; only unfavorable variances indicate problems.” Do you agree?
> Why is manufacturing cycle efficiency important to most organizations?
> What performance factors do measures related to customer satisfaction attempt to evaluate?
> What is the difference between an organization’s mission and its strategy?
> What is “management by exception”?
> What are several examples of companies that probably use materials mix and yield variances?
> For what decisions would a manager want to know market share variance?
> Why is there no efficiency variance for revenues?
> What does a manager learn by computing an industry volume variance?
> Variance analysis can be useful in a manufacturing environment where you know the standards, but it wouldn’t be useful in a service environment.” True or false?
> Standards and budgets are the same thing. True or false?
> How could a hospital firm use the mix variances to analyze salary costs regarding emergency room services?
> What is the basic difference between a master budget and a flexible budget? a. A flexible budget considers only variable costs; a master budget considers all costs. b. A master budget is based on a predicted level of activity; a flexible budget is based
> What is the standard cost sheet?
> The flexible budget for costs is computed by multiplying average total cost at the master budget activity level by the activity at some other level.” Is this true or false? Explain.
> How can a budget be used for performance evaluation?
> When would you advise a firm to use prices other than market prices for interdivisional transfers?
> Many firms prefer to use market prices for transfer prices. Why would they have this preference?
> Do transfer prices exist in centralized firms? Why?
> If a division’s residual income falls from one period to the next, does that mean that the division’s performance is declining? Why?
> If a division’s ROI falls from one period to the next, does that mean that the division’s performance is declining? Why?
> How could a hospital firm use the mix variance to analyze its revenues?
> How is return on investment (ROI) computed?
> What makes creating budgets for marketing and administration more difficult than creating, for example, the production cost budget?
> Write out the inventory equation that is used to determine required production in the production budget for a manufacturing firm.
> What is participative budgeting? What are some advantages of participative budgeting? What are some disadvantages?
> What is the purpose of the cash budget if the budgeted income statement will indicate whether the firm expects to be profitable?
> What does the phrase “use it or lose it” mean in the context of budgeting?
> Which has more detail, the budget for the coming period or a long-range forecast? Why?
> What is the dual-rate method of corporate cost allocation?
> The owner-manager of Molena Restaurant describes the balanced scorecard measures used to assess performance by listing the following performance measures: Required a. Link the measures to the perspectives of the balanced scorecard by filling in the follo
> A regional airline discloses that it uses a balanced scorecard with the following performance measures: • Profit • Gate agent assessments • Load factor (percentage of seats filled) •
> Reviewing the variance report for one of the manufacturing plants in your company, you see a large unfavorable fixed cost price variance and large favorable production volume variance. You contact the plant controller, who says that there is no problem:
> What role does the master budget play in the planning and budgeting exercise?
> Refer to the information in Problem 16-78. Variable overhead is applied on the basis of machine hours. The standard cost sheet follows: The actual resource usage for July per unit of output follows: Required Prepare a manufacturing cost variance analysis
> Harlow Parts produces a single product at its Superior Plant. The master budget for July follows: The following operating income statement shows the actual results for July: Required Prepare a profit variance analysis for the Superior Plant for July such
> Pease Contractors is a local home remodeling company. In analyzing financial performance, the accountant compares actual results with a flexible budget. The standard direct labor rates used in the flexible budget are established each year at the time the
> Stearn & Company makes a lubricating oil using two grades of petroleum (Alpha and Beta). Within certain limits, the two grades can substitute for one another, so the actual mix of inputs often differs from the standard mix. Stearn holds no materials
> Robinwood Fixtures manufactures two products, K4 and X7. The company prepares its master budget on the basis of standard costs. The following data are for September: Required a. Prepare a variance analysis for each variable cost for each product. b. Prep
> McKinney Solvents produces a wide variety of products for the manufacturing industry. The standard mix for producing a single batch of 100 gallons of its biggest-selling product is as follows: There is a standard 20 percent loss in liquid volume during p
> Refer to the data for the Earle Soup Company (Problem 17-54). Required Break down the total activity variance into sales mix and quantity parts. Problem 17-54:
> Wisner Fabrication prepares its budgets on the basis of standard costs. Variances are analyzed and reported monthly. There are no materials inventories. The following information relates to the current period: Actual costs and activities for the month fo
> Refer to the data in Problem 16-61. Required Prepare a sales activity variance analysis for Savery Parts for March like the one in Exhibit 16.4. Problem 16-61:
> The results for March for Savery Parts follow: Required Prepare a flexible budget for Savery Parts for March.
> Production cost variances are not useful in my company. There is substantial learning that takes place, so we are more efficient, the more we produce. A standard cost sheet doesn’t reflect that.” Do you agree?
> Refer to the data in Problem 16-58. Required Use the information for Nottingham Forest Products in Problem 16-58 to prepare a profit variance analysis like the one in Exhibit 16.5. Problem 16-58:
> The following partial information is contained in the variance analysis received from the Western Plant of Eastlawn Company. All plants at Eastlawn apply overhead on the basis of direct labor-hours. Required a. Prepare a variable overhead analysis like t
> The management at Inverness Manufacturing feels confident about the company’s prospect in the current year (year 2). Sales in the first quarter were one-third ahead of last year, and the sales department predicted that this rate would c
> Monitor Devices shows the following overhead information for the current period. Required What are the variable overhead price and efficiency variances and fixed overhead price variance?
> Nottingham Forest Products reports the following information concerning operations for the most recent month: There are no inventories. Required Prepare a flexible budget for Nottingham Forest Products.
> Information about direct materials cost follows for Jennings Chemicals: Required What was the actual purchase price per gallon?
> Refer to the data in Problem 16-61. Required Prepare a profit variance analysis for Savery Parts for March like the one in Exhibit 16.5. Problem 16-61:
> New Town Foods sells a variety of packaged foods through supermarkets and other outlets using a dedicated sales team. The budget planning group has just received the sales team expense summary for the third quarter, which follows: You have been asked to
> Gable Corporate Services uses EVA to evaluate the performance of division managers. For the Media Division, after-tax divisional income was $3,100,000 in year 3. The company adjusts the after-tax income for advertising expenses. First, it adds the annual
> Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures as expenses for financial accounting purposes. To encourage investment in R&D, Normandy evaluates its division managers using EV
> A CEO tells you, “Division A always reports large, favorable variances. This saves us a lot of time because we do not have to spend time reviewing their results.” Comment.
> Refer to the data in Problem 16-58. Required Prepare a sales activity variance analysis for Nottingham Forest Products like the one in Exhibit 16.4. Problem 16-58:
> The following information is available for Fairmount Industries from year 1 operations: All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $22,000 will be fully depreciated by the end of year 1 and will
> Refer to Problem 15-56. Suppose Testing could sell time on the machine to other companies in the area on a per-hour basis. Further, it can sell all the time available for $22 per hour. Required a. What is the optimal transfer price rule Testing should us
> Coyle Manufacturing reports the following information for year 1: All depreciation charges are fixed. Manufacturing depreciation is expected to increase by 10 percent in year 2. Marketing and administrative depreciation are expected to remain the same fo
> Refer to the data in Problem 15-54. At the end of the year, the following data are available on actual operations at the landfill: Required Based on the actual activities and costs, would you change the recommendation you made in Problem 15-54? Why or wh
> Consider the following well-known companies and their key products and services: Required Identify one thing that is a core capability for each. Also identify one capability that companies have that is not core.
> Graves Bank & Trust (GB&T) estimates that its overhead costs for policy administration should be $55 for each new account opened and $0.60 per year for each $1,000 of deposits. The company set a budget of opening 35,000 new accounts during the coming per
> Leidich Corporation manufactures hospital equipment. The Measurement Division (MD) manufactures testing and measurement equipment including a special cardiovascular instrument. MD started the year with $6.25 million in other assets. At the beginning of t
> Leverette Mortgage Lenders (LML) is a financial institution that originates mortgage loans. The company charges a service fee for processing loan applications. This fee is set twice a year based on the cost of processing a loan application. For the first
