Question 1

The performance report of a profit center includes both revenues and expenses.

Accepted Answer

The performance report of a profit center is a statement of the financial results of the center, which includes both revenues and expenses. It is used to evaluate the profitability of the center and to make decisions about its operations.

Question 2

Milliken Inc.provides the following information:  Calculate the sales volume variance.

Accepted Answer

The answer of Milliken Inc.provides the following information:  Calculate...

Question 3

Johnson Construction Materials Company has a sales office which sells concrete culvert pipes to property developers.The sales office is a revenue center and must prepare a monthly performance report.It has provided the following information. 
- What is the flexible budget variance for the 40 inch pipe?

Accepted Answer

The answer of Johnson Construction Materials Company has a sales...

Question 4

Which of the following statements is true of performance reporting?

Accepted Answer

Managers should only be held accountable for variances within their control, as uncontrollable variances are outside their influence, making it unfair and unproductive to hold them responsible for such outcomes.

Question 5

Huang Consumer Products has a small car division that operates as a profit center.Below is a partially completed performance report for the first quarter. 
- How much is the percentage variance for the flexible budget variance for traceable fixed expenses?

Accepted Answer

The answer of Huang Consumer Products has a small car...

Question 6

To adequately evaluate an investment center's financial performance,summary performance measures that include both the division's operating income and its assets are required.

Accepted Answer

Evaluating both the division's operating income and assets is necessary to get a complete picture of its financial performance. Simply looking at one measure may not provide an accurate reflection of the center's efficiency or profitability.

Question 7

Operating income alone does not indicate how efficiently a segment is using its assets.

Accepted Answer

Operating income may be influenced by factors outside of a segment's control, such as interest income or expenses. Therefore, other financial metrics such as return on assets or return on equity may be necessary to evaluate a segment's asset efficiency.

Question 8

Return on Investment (ROI)measures the profitability of an investment center,not efficiency.

Accepted Answer

The answer of Return on Investment (ROI)measures the profitability of...

Question 9

The Return on Investment (ROI)formula focuses on the amount of operating income earned before other revenue/expense items such as interest expense.

Accepted Answer

The ROI formula calculates the amount of operating income earned in comparison to the amount of invested capital. It doesn't take into account other revenue or expenses such as interest expense.

Question 10

Huang Consumer Products has a small car division that operates as a profit center.Below is a partially completed performance report for the first quarter. 
- How much is the percentage variance for the flexible budget variance for sales revenue?

Accepted Answer

To find the flexible budget variance for sales revenue, we need to compare the actual revenue to the flexible budget revenue. 
Flexible budget revenue = flexible budget sales price × actual units sold 
Flexible budget sales price = budgeted sales price per unit + budgeted variable cost per unit 
Flexible budget sales price = $24 + $12 = $36 
Flexible budget revenue = $36 × 18,000 = $648,000

Flexible budget variance for sales revenue = Actual revenue - Flexible budget revenue 
Flexible budget variance for sales revenue = $645,120 - $648,000 = -$2,880

Since the actual revenue is less than the flexible budget revenue, the variance is unfavorable or unfavorable.

To calculate the percentage variance, we use the formula: 
Percentage variance = (Variance ÷ Flexible budget revenue) × 100

Percentage variance = (-$2,880 ÷ $648,000) × 100 
Percentage variance = -0.44%

Since the percentage variance is negative, we know that the variance is unfavorable. However, we need to choose the option that corresponds to the absolute value of the percentage variance.

The absolute value of -0.44% is 0.44%, which is closest to option B (1.7% U). Therefore, the answer is B.

Question 11

Return on investment focuses on net income in the numerator of the ratio.

Accepted Answer

The answer of Return on investment focuses on net income...

Question 12

Johnson Construction Materials Company has a sales office which sells concrete culvert pipes to property developers.The sales office is a revenue center and must prepare a monthly performance report.It has provided the following information. 
- What is the sales volume variance for the 36 inch long pipe?

Accepted Answer

Sales volume variance is calculated as the difference between the actual sales volume and the budgeted sales volume, multiplied by the standard price. The choice $9,000 F indicates a favorable variance, meaning actual sales exceeded budgeted sales, resulting in increased revenue.

Question 13

Both the sales volume variance and the flexible budget variance help revenue center managers understand why they have exceeded or fallen short of budgeted revenue.

Accepted Answer

Both variances provide valuable insights into the reasons for deviations from the budgeted revenue, with the sales volume variance highlighting changes in sales volume and the flexible budget variance indicating the effect of changes in variable costs and prices. Together, these variances help managers make informed decisions to improve revenue performance in the future.

Question 14

Responsibility report for revenue centers shows all costs incurred by the department and is useful when management needs to know the total cost of operating the department.

Accepted Answer

A responsibility report for revenue centers focuses on revenues generated rather than costs incurred, as revenue centers are primarily evaluated based on their ability to generate income.

Question 15

Companies evaluate investment centers using the same measures as the profit centers.

Accepted Answer

Investment centers are evaluated using additional measures such as return on investment (ROI), net present value (NPV), and internal rate of return (IRR) that are not typically used for profit centers. This is because investment centers make significant capital investments in projects or assets, and their performance is more focused on the long-term returns of those investments rather than short-term profitability.

Question 16

Residual Income (RI)considers both the division's operating income and its average total assets.In addition,it also incorporates another piece of information known as top management's target rate of return.

Accepted Answer

This statement is true. Residual income takes into account the operating income, total assets, and top management's target rate of return to determine how much income is generated beyond the required return on investment.

Question 17

Managers of investment centers are responsible not only for generating profits but also to ensure the efficient use of assets of the investment centers.

Accepted Answer

Managers of investment centers have a dual responsibility of generating profits and effectively and efficiently utilizing the assets of the investment center to maximize return on investment.

Question 18

Residual Income (RI)compares the division's actual operating income with the minimum operating income expected for the given size of the division's average total assets.

Accepted Answer

This is the correct definition of residual income.

Question 19

Johnson Construction Materials Company has a sales office which sells concrete culvert pipes to property developers.The sales office is a revenue center and must prepare a monthly performance report.Below is the partially completed performance report. 
- The company uses management by exception to address flexible budget variances.On which product type would the company focus first?

Accepted Answer