161.A flexible budget is appropriate for
Direct Labor Costs Manufacturing Overhead Costs
a. No No
b. Yes Yes
c. Yes No
d. No Yes
162. All of the following statements are correct about management by exception except it
a. enables top management to focus on problem areas that need attention.
b. means that management has to investigate every budget difference.
c. requires that there must be some guidelines for identifying an exception.
d. means that top management’s review of a budget report is focused primarily on differences between actual results and planned objectives.
163. Controllable costs for responsibility accounting purposes are those costs that are directly influenced by
a. a given manager within a given period of time.
b. a change in activity.
c. production volume.
d. sales volume.
164. All of the following statements are correct about controllable costs except
a. all costs are controllable at some level of responsibility within a company.
b. all costs are controllable by top management.
c. fewer costs are controllable as one moves up to each higher level of managerial responsibility.
d. costs incurred directly by a level of responsibility are controllable at that level.
165. Which of the following will cause an increase in ROI?
a. An increase in variable costs
b. An increase in average operating assets
c. An increase in sales
d. An increase in controllable fixed costs
166. Costs that relate specifically to one center and are incurred for the sole benefit of that center are
a. common fixed costs.
b. direct fixed costs.
c. indirect fixed costs.
d. noncontrollable fixed costs.
167. If controllable margin is $300,000 and the average investment center operating assets are $2,000,000, the return on investment is
Devlin Manufacturing makes a single product. Expected manufacturing costs are as follows:
Direct materials $6.50 per unit
Direct labor 2.40 per unit
Manufacturing overhead 1.10 per unit
Fixed costs per month
Supervisory salaries $13,600
Other fixed costs 2,200
Determine the amount of manufacturing costs for a flexible budget level of 3,200 units per month.
Wind Productions uses flexible budgets. Items from the budget for March in which 3,000 units were produced and sold appear below:
Direct materials $18,000
Indirect materials – variable 2,000
Supervisor salaries 15,000
Depreciation on factory equipment 4,000
Direct labor 10,000
Property taxes on factory 1,000
If Wind prepares a flexible budget at 4,000 units, compute its total variable cost.
Cyber Construction’s manufacturing costs for August when production was 1,000 units appear below:
Direct material $12 per unit
Direct labor $7,500
Variable overhead 6,000
Factory depreciation 9,000
Factory supervisory salaries 7,800
Other fixed factory costs 2,500
Compute the flexible budget manufacturing cost amount for a month when 900 units are produced.
Micro Miller Company’s budgeted sales for April were estimated at $700,000, sales commissions at 4% of sales, and the sales manager’s salary at $80,000. Shipping expenses were estimated at 1% of sales and miscellaneous selling expenses were estimated at $1,000, plus 0.5% of sales.
Determine the budgeted selling expenses on a flexible budget for April.
Point, Inc. produces men’s shirts. The following budgeted and actual amounts are for 2013:
Cost Budget at 2,500 units Actual Amounts at 2,800 units
Direct materials $65,000 $75,000
Direct labor 70,000 78,000
Fixed overhead 35,000 34,500
Prepare a performance report for Point, Inc. for the year.
Moss Corp. reported the following items for 2013:
Controllable fixed costs $ 77,000
Contribution margin 122,000
Interest expense 20,000
Variable costs 80,000
Total assets $925,000
BE 173 (Cont.)
Compute the controllable margin for 2013.
The data for an investment center is given below.
January 1, 2013 December 31, 2013
Current Assets $ 400,000 $ 800,000
Plant Assets 3,000,000 3,800,000
The controllable margin is $440,000.
Compute the return on investment for the center for 2013.
Data for the Deluxe Division of Park Industries which is operated as an investment center follows:
Contribution Margin 800,000
Controllable Fixed Costs 440,000
Return on Investment 12%
Calculate controllable margin and average operating assets.
Sage Division’s operating results include:
- Controllable margin, $300,000
- Sales revenue, $2,400,000
- Operating assets, $1,000,000
Sage is considering a project with sales of $240,000, expenses of $168,000, and an investment of $360,000. Sage’s required rate of return is 15%.
Determine whether Sage should accept this project.
An investment center manager is considering three possible investments. The company’s required return is 10%. The required asset investment, controllable margins, and the ROIs of each investment are as follows:
Project Average Investment Controllable Margin ROI
AA $160,000 $32,000 20.0%
BB 140,000 16,000 11.4%
CC 220,000 66,000 30%
The investment center is currently generating an ROI of 23% based on $1,200,000 in operating assets and a controllable margin of $276,000.
If the manager can select only one project, determine which one is the best choice to increase the investment center’s ROI. Compute how much the investment center’s ROI will be if the manager selects your recommendation.
The owner of Denver Toy Manufacturing Company has recently expanded his business in order to add an additional product line. In addition to toys, the company now sells shirts. The company has a minimum rate of return of 11%.
Sales $600,000 $200,000
Controllable margin 120,000 10,000
Average operating assets 900,000 200,000
Compute the residual income for both investment centers.
Floors Direct has 4 divisions. Its hardwood flooring division’s information follows for 2013:
Controllable margin 250,000
Variable costs 60,000
Average operating assets 1,800,000
Floor’s required rate of return is 10%. How much is its residual income?
Clark Company’s master budget reflects budgeted sales information for the month of June, 2013, as follows:
Budgeted Quantity Budgeted Unit Sales Price
Product A 40,000 $7
Product B 48,000 $9
During June, the company actually sold 39,000 units of Product A at an average unit price of $7.10 and 49,600 units of Product B at an average unit price of $8.90.
Prepare a Sales Budget Report for the month of June for Clark Company which shows whether the company achieved its planned objectives.
Beal Manufacturing Co.’s static budget at 12,000 units of production includes $72,000 for direct labor and $12,000 for direct materials. Total fixed costs are $48,000.
a. Determine how much would appear on Beal’s flexible budget for 2013 if 18,000 units are produced and sold.
b. How would this comparison differ if a static budget were used instead of a flexible budget for performance evaluation?
Cody Co. developed its annual manufacturing overhead budget for its master budget for 2013 as follows:
Expected annual operating capacity 120,000 Direct Labor Hours
Variable overhead costs
Indirect labor $600,000
Indirect materials 120,000
Factory supplies 60,000
Total variable 780,000
Fixed overhead costs
Property taxes 96,000
Total fixed 456,000
Total costs $1,236,000
The relevant range for monthly activity is expected to be between 8,000 and 12,000 direct labor hours.
Prepare a flexible budget for a monthly activity level of 8,000 and 9,000 direct labor hours.
Copper Manufacturing has prepared the following monthly flexible manufacturing overhead budget for its Mixing Department:
Monthly Flexible Manufacturing Overhead Budget
Direct labor hours 3,000 4,000
Indirect materials $ 3,000 $ 4,000
Indirect labor 15,000 20,000
Factory supplies 4,500 6,000
Total variable 22,500 30,000
Depreciation 20,000 20,000
Supervision 12,000 12,000
Property taxes 15,000 15,000
Total fixed 47,000 47,000
Total costs $69,500 $77,000
Prepare a flexible budget at the 5,000 direct labor hours of activity.
Berne, Inc. uses a flexible budget for manufacturing overhead based on machine hours. Variable manufacturing overhead costs per machine hour are as follows:
Indirect labor $5.00
Indirect materials 2.50
Fixed overhead costs per month are:
Property taxes 300
The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per month.
Prepare a flexible manufacturing overhead budget for the expected range of activity, using increments of 1,000 machine hours.
Telemark Production’s manufacturing costs for July when production was 2,000 units appears below:
Direct materials $10 per unit
Factory depreciation $16,000
Variable overhead 10,000
Direct labor 4,000
Factory supervisory salaries 11,600
Other fixed factory costs 3,000
How much is the flexible budget manufacturing cost amount for a month when 2,200 units are produced?