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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 a. .67%. b. 6.66%. c. 20%. d. 15%. BE 168 Devlin Manufacturing makes a single product. Expected manufacturing costs are as follows: Variable costs 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 Depreciation 5,500 Other fixed costs 2,200 Instructions Determine the amount of manufacturing costs for a flexible budget level of 3,200 units per month. BE 169 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 Instructions If Wind prepares a flexible budget at 4,000 units, compute its total variable cost. BE 170 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 Instructions Compute the flexible budget manufacturing cost amount for a month when 900 units are produced. BE 171 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. Instructions Determine the budgeted selling expenses on a flexible budget for April. BE 172 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 Instructions Prepare a performance report for Point, Inc. for the year. BE 173 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.) Instructions Compute the controllable margin for 2013. BE 174 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. Instructions Compute the return on investment for the center for 2013. BE 175 Data for the Deluxe Division of Park Industries which is operated as an investment center follows: Sales $6,000,000 Contribution Margin 800,000 Controllable Fixed Costs 440,000 Return on Investment 12% Instructions Calculate controllable margin and average operating assets. BE 176 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%. Instructions Determine whether Sage should accept this project. BE 177 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. Instructions 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. aBE 178 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%. Toys Shirts Sales $600,000 $200,000 Controllable margin 120,000 10,000 Average operating assets 900,000 200,000 Instructions Compute the residual income for both investment centers. aBE 179 Floors Direct has 4 divisions. Its hardwood flooring division’s information follows for 2013: Sales $4,000,000 Controllable margin 250,000 Variable costs 60,000 Average operating assets 1,800,000 Instructions Floor’s required rate of return is 10%. How much is its residual income? EXERCISES Ex. 180 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. Instructions Prepare a Sales Budget Report for the month of June for Clark Company which shows whether the company achieved its planned objectives. Ex. 181 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. Instructions 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? . Ex. 182 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 Depreciation 240,000 Supervision 120,000 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. Instructions Prepare a flexible budget for a monthly activity level of 8,000 and 9,000 direct labor hours. Ex. 183 Copper Manufacturing has prepared the following monthly flexible manufacturing overhead budget for its Mixing Department: COPPER MANUFACTURING Monthly Flexible Manufacturing Overhead Budget Mixing Department Activity level Direct labor hours 3,000 4,000 Variable costs Indirect materials $ 3,000 $ 4,000 Indirect labor 15,000 20,000 Factory supplies 4,500 6,000 Total variable 22,500 30,000 Fixed costs 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 Instructions Prepare a flexible budget at the 5,000 direct labor hours of activity. Ex. 184 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 Maintenance .80 Utilities .30 Fixed overhead costs per month are: Supervision $800 Insurance 200 Property taxes 300 Depreciation 900 The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per month. Instructions Prepare a flexible manufacturing overhead budget for the expected range of activity, using increments of 1,000 machine hours. Ex. 185 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 Instructions How much is the flexible budget manufacturing cost amount for a month when 2,200 units are produced?

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

a. .67%.

b. 6.66%.

c. 20%.

d. 15%.

 

BE 168

Devlin Manufacturing makes a single product. Expected manufacturing costs are as follows:

Variable costs

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

Depreciation 5,500

Other fixed costs 2,200

Instructions

Determine the amount of manufacturing costs for a flexible budget level of 3,200 units per month.

 

 

BE 169

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

Instructions

If Wind prepares a flexible budget at 4,000 units, compute its total variable cost.

 

BE 170

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

Instructions

Compute the flexible budget manufacturing cost amount for a month when 900 units are produced.

 


BE 171

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.

Instructions

Determine the budgeted selling expenses on a flexible budget for April.

 

BE 172

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

Instructions

Prepare a performance report for Point, Inc. for the year.

 

BE 173

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.)

Instructions

Compute the controllable margin for 2013.

 

BE 174

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.

Instructions

Compute the return on investment for the center for 2013.

BE 175

Data for the Deluxe Division of Park Industries which is operated as an investment center follows:

Sales $6,000,000

Contribution Margin 800,000

Controllable Fixed Costs 440,000

Return on Investment 12%

Instructions

Calculate controllable margin and average operating assets.

 

 

BE 176

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%.

 

Instructions

Determine whether Sage should accept this project.

 

BE 177

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.

Instructions

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.

 

aBE 178

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%.

Toys Shirts

Sales $600,000 $200,000

Controllable margin 120,000 10,000

Average operating assets 900,000 200,000

Instructions

Compute the residual income for both investment centers.

 

aBE 179

Floors Direct has 4 divisions. Its hardwood flooring division’s information follows for 2013:

Sales $4,000,000

Controllable margin 250,000

Variable costs 60,000

Average operating assets 1,800,000

Instructions

Floor’s required rate of return is 10%. How much is its residual income?

 


EXERCISES

Ex. 180

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.

Instructions

Prepare a Sales Budget Report for the month of June for Clark Company which shows whether the company achieved its planned objectives.

 

Ex. 181

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.

Instructions

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?

.


Ex. 182

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

Depreciation 240,000

Supervision 120,000

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.

Instructions

Prepare a flexible budget for a monthly activity level of 8,000 and 9,000 direct labor hours.

 

 

Ex. 183

Copper Manufacturing has prepared the following monthly flexible manufacturing overhead budget for its Mixing Department:

COPPER MANUFACTURING

Monthly Flexible Manufacturing Overhead Budget

Mixing Department

Activity level

Direct labor hours 3,000 4,000

Variable costs

Indirect materials $ 3,000 $ 4,000

Indirect labor 15,000 20,000

Factory supplies 4,500 6,000

Total variable 22,500 30,000

Fixed costs

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

Instructions

Prepare a flexible budget at the 5,000 direct labor hours of activity.

 


Ex. 184

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

Maintenance .80

Utilities .30

Fixed overhead costs per month are:

Supervision $800

Insurance 200

Property taxes 300

Depreciation 900

The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per month.

Instructions

Prepare a flexible manufacturing overhead budget for the expected range of activity, using increments of 1,000 machine hours.

 


Ex. 185

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

Instructions

How much is the flexible budget manufacturing cost amount for a month when 2,200 units are produced?

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