Exam 2 Accounting

Chris Allport - UAH

A favorable variance reflects a decrease in operating income.

False

An investment center manager is responsible for generating profits and managing invested capital.

True

A standard cost system is an accounting system that uses standards for product costs.

True

Centralized operations are better for small companies due to the smaller scope of their operations.

True

The manager of a revenue center is responsible for generating profits.

False

Worldwide Logistics provides the following information:

Operating income	$1,550,000
Net sales	$15,000,000
Average total assets	$1,850,000
Management's target rate of return	25%

 

What is the company's residual income?

$1,087,500

The static budget, at the beginning of the month, for Beacon Banner Company follows:

Static budget:

Sales volume: 1,100 units; Sales price: $70.00 per unit

Variable costs: $32.00 per unit; Fixed costs: $38,700 per month

Operating income: $3,100

 

Actual results, at the end of the month, follows:

Actual results:

Sales volume: 990 units; Sales price: $74.00 per unit

Variable costs: $36.00 per unit; Fixed costs: $35,000 per month

Operating income: $2,620

 

Calculate the sales volume variance (i.e., quantity variance) for revenue.

$7,700 U

Tanger Company has the following data:

	Actual Results	Static Budget
Units	910	740
Sales Revenue	$68,250	$37,740
Variable Costs	31,850	17,760
Contribution Margin	36,400	19,980
Fixed Costs	35,000	13,000
Operating Income/(Loss)	$1,400	$6,980

What is the static budget variance for variable costs?

$14,090 U

Provisions Company, a manufacturer of office supplies, provides the following financial information:

	Pen Division	Pencil Division
Operating income	$100,000	$50,000
Net sales	$400,000	$150,000
Total assets at Jan. 1	$580,000	$350,000
Total assets at Dec. 31	$700,000	$300,000

 

Calculate the return on investment for the Pen Division. (Round your answer to two decimal places.)

15.63%

Guardian Corporation has two major divisions — Healthcare Products and Pharmaceutical Products. It provides the following information for the year.

	Healthcare Division	Pharmaceutical Division
Net sales	$150,000	$1,250,000
Operating income	$47,000	$218,400
Average assets	$290,000	$5,580,000
Target rate of return	14.0%	11.0%

 

Calculate the residual income for the Healthcare Division.

$6,400

Tanger Company has the following data:

	Actual Results	Static Budget
Units	940	780
Sales Revenue	$65,800	$42,900
Variable Costs	28,200	21,840
Contribution Margin	37,600	21,060
Fixed Costs	31,000	10,000
Operating Income/(Loss)	$6,600	$11,060

What is the static budget variance for operating income?

$4,460 U

Step Up Ladders Company provides the following financial information:

Income from operations	$200,000
Interest expense	50,000
Gains/(losses) on sale of equipment	3,000
Net income	147,000
Total assets at Jan. 1	2,900,000
Total assets at Dec .31	3,300,000

 

Calculate return on investment based on the information given above. (Round your answer to two decimal places.)

6.45%

An unfavorable flexible budget variance (i.e., cost variance) in variable costs suggests a(n) ________.

increase in variable cost per unit

The static budget, at the beginning of the month, for Vintage Wine Company follows:

Static budget:

Sales volume: 2,000 units; Sales price: $50.00 per unit

Variable costs: $14.00 per unit; Fixed costs: $25,400 per month

Operating income: $46,600

 

Actual results, at the end of the month, follows:

Actual results:

Sales volume: 1,800 units; Sales price: $59.00 per unit

Variable costs: $17.00 per unit; Fixed costs: $33,000 per month

Operating income: $42,600

 

Calculate the flexible budget variance (i.e., cost variance) for variable costs.

$5,400 U

Which of the following is the correct formula for measuring a cost variance?

 

Cost Variance = (Actual Cost - Standard Cost) × Actual Quantity

A favorable flexible budget variance (i.e., sales price variance) in sales revenue suggests a(n) ________

increase in sales price per unit

The static budget, at the beginning of the month, for Divine Décor Company, follows:

Static budget:

Sales volume: 1,300 units; Sales price: $70.00 per unit

Variable costs: $32.00 per unit; Fixed costs: $37,600 per month

Operating income: $11,800

 

Actual results, at the end of the month, follows:

Actual results:

Sales volume: 960 units; Sales price: $75.00 per unit

Variable costs: $35.00 per unit; Fixed costs: $33,700 per month

Operating income: $4,700

 

Calculate the flexible budget variance (i.e., sales price variance) for sales revenue.

$4,800 F

Which of the following is the correct formula for measuring an efficiency/quantity variance?

Efficiency Variance = (Actual Quantity - Standard Quantity) × Standard Cost

Infinity Clock Company prepared the following static budget for the year:

Static Budget
Units/Volume		7,000
	Per Unit
Sales Revenue	$5.00	$35,000
Variable Costs	1.50	10,500
Contribution Margin		24,500
Fixed Costs		3,000
Operating Income/(Loss)		$21,500

If a flexible budget is prepared at a volume of 6,300 units, calculate the amount of operating income. The production level is within the relevant range.

$19,050

Residual income indicates how ________.

 

much extra operating income a division generates above the minimum acceptable level

Understanding and dealing with the emotional and behavioral implications of budgeting is a vital part of any budgetary process succeeding.

True

When preparing the budgeted balance sheet, the amount of Merch Inv is obtained from the…

Inventory purchases budget

1. Merchandise inventory on hand at beginning of the quarter is worth $500. The comp desires to maintain ending inventory each month equal to 50% of next month’s cost of goods sold. FIND MARCH

Month:	Jan	Feb	Mar	Apr
Dollars	4,000	2,000	3,000	5,000

COGS + Ending Inventory = Total Inventory + Beginning Inventory = Purchases

March = 3,000 + 2,000 = 5,500 - 1,500 = 4,000

A business has budgeted sales for June and July at $500,000 and $700,000, respectively. Sales are 100% on credit, of which 60% is collected in the month of sale, and 40% is collected in the month following the sale. The Acc Receivable balance on May 31 is $240,000.

	June	July
Month Of	(60% of 500,000) = 300,000	(60% of 700,000) = 420,000
Month After	+ 240,000	+ 200,000
	= 540,000	= 620,00

700,000 - 420,000 = 280,000

A business has budgeted sales for the months of September and October at $300,000 and $250,000, respectively. Monthly sales are 20% credit and 80% cash. Of the credit sales, 50% are collected in the month of sale, and 50% are collected in the following month. Calculate cash collections for the month of October.

1. 
   

	October - 250,000
Cash Sales	(80% x 250,000) = 200,000
Month Of	25,000
Month After	30,000
Answer	255,000

Cost Center

Responsible for control cost only

Profit Center

The manager is only responsible for generating revenues and controlling costs

Investment Center

The manager is only responsible for the center’s invested capital

Residual Income Formula

Operating Income - (Average Total Assets x Target Rate of Return)

Sales Volume Variance for Revenue Formula

(Actual Volume - Budgeted Volume) x Budgeted Price per Unit

Static Budget Variance Formula

Actual Variable Costs - Static Budget Variable Costs

Return on Investment Formula

Operating Income / Average Total Assets

Flexible Budget Variable Cost Formula

Actual Units x Budgeted Variable Cost per Unit = Flexible budget

Actual Units x Actual Variable Cost per unit = Actual Budget

Actual Budget - Flexible Budget

Favorable (F)

If an actual amount increases operating income:

Actual revenue > Budgeted revenue

Actual expense < Budgeted expense

Unfavorable (U)

If an actual amount decreases operating income:

Actual revenue < Budgeted revenue

Actual expense > Budgeted expense

Flexible Budget

Summarizes revenue & expenses for various levels of sales volume within a relevant range 

Static Budget

Summarizes revenue & expenses for one level of sales volume within a relevant range