9) Waycross Construction Company has a pipeyard operation which is run as a cost center. They are preparing a
performance report for the month of March and have provided the data below:
Cost Center
Flexible
Flexible Budget
Performance Report
Actual
Budget
Variance
U/F
% variance
U/F
Wages & benefits
$81,200
$80,000
Office lease expense
42,060
45,000
Depreciation expense
39,600
42,000
Insurance expense
33,490
30,000
Other expense
7,120
8,000
$203,470
$205,000
A) 11.6 % U
B) 11.6 % F
C) 12.5 % U
D) 12.5% F
10) Waycross Construction Company has a pipeyard operation which is run as a cost center. They are preparing a
performance report for the month of March and have provided the data below:
Cost Center
Flexible
Flexible Budget
Performance Report
Actual
Budget
Variance
U/F
% variance
U/F
Wages & benefits
$81,200
$80,000
Office lease expense
42,060
45,000
Depreciation expense
39,600
42,000
Insurance expense
33,490
30,000
Other expense
7,120
8,000
$203,470
$205,000
Waycross uses management by exception. On which variance will Waycross focus first?
A) Wages & benefits
B) Insurance expense
C) Office lease expense
D) Depreciation expense
11) Which of the following statements BEST describes management by exception?
A) Management investigates only unfavorable variances.
B) Management investigates all variances that are exceptions to the usual trends.
C) Management investigates all variances.
D) Management investigates only variances of significant magnitude.
12) Johnson Construction Materials Company has a sales office which sells concrete culvert pipe to property
developers. The sales office is a revenue center and must prepare a monthly performance report. It has provided the
data below.
A) $10,000 U
B) $1,500 F
C) $1,850 U
D) $9,000 F
13) Johnson Construction Materials Company has a sales office which sells concrete culvert pipe to property
developers. The sales office is a revenue center and must prepare a monthly performance report. It has provided the
data below.
How much is the sales volume variance for the 40 inch pipe?
A) $10,000 U
B) $1,500 F
C) $1,850 U
D) $9,000 F
14) Johnson Construction Materials Company has a sales office which sells concrete culvert pipe to property
developers. The sales office is a revenue center and must prepare a monthly performance report. It has provided the
data below.
How much is the flexible budget variance for the 32 inch pipe?
A) $1,000 F
B) $1,000 U
C) $8,000 U
D) $8,000 F
15) Johnson Construction Materials Company has a sales office which sells concrete culvert pipe to property
developers. The sales office is a revenue center and must prepare a monthly performance report. It has
provided the data below.
How much is the sales volume variance for the 32 inch pipe?
A) $1,000 F
B) $1,000 U
C) $8,000 U
D) $8,000 F
16) Johnson Construction Materials Company has a sales office which sells concrete culvert pipe to property
developers. The sales office is a revenue center and must prepare a monthly performance report. Please view the
partially completed performance report below:
A company uses management by exception to address flexible budget variances. On which variance would the
company focus first?
A) 40 inch
B) 26 inch long
C) 36 inch short
D) 32 inch
17) Tavares Manufactured Homes Company has a sales division which submits a monthly performance report as a
revenue center. A partially completed performance report appears below:
A) $1,000 U
B) $1,000 F
C) $100 U
D) $100 F
18) Tavares Manufactured Homes Company has a sales division which submits a monthly performance report as a
revenue center. A partially completed performance report appears below:
How much is the sales volume variance for Model B3?
A) $1,000 U
B) $1,000 F
C) $100 U
D) $100 F
19) Rockland Heavy Industries has a sales division that focuses on power cranes. The sales division is a revenue
center. Below is a partially completed performance report for the month of June.
Rockland uses management by exception to investigate flexible budget variances. On which of the following
variances would they focus first for investigation?
A) Lightweight
B) Heavyweight
C) Green model
D) Extended length
20) Zhongfang 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 variance for sales revenue?
A) $11,000 F
B) $12,000 F
C) $12,000 U
D) $13,000 F
21) Zhongfang 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 variance for variable expenses?
A) $11,000 F
B) $12,000 F
C) $12,000 U
D) $13,000 F
22) Zhongfang 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 variance for traceable fixed expenses?
A) $3,000 F
B) $1,000 F
C) $3,000 U
D) $1,000 U
23) Zhongfang 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 variance for division profit margin?
A) $4,000 F
B) $6,000 F
C) $4,000 U
D) $1,000 U
24) Zhongfang 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 sales revenue?
A) 1.7 % F
B) 1.7 % U
C) 3.4 % U
D) 3.4 % F
25) Zhongfang 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 variable expenses?
A) 1.7 % F
B) 1.7 % U
C) 3.4 % U
D) 3.4 % F
26) Zhongfang 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 traceable fixed expenses?
A) 0.8 % F
B) 0.8 % U
C) 0.3 % U
D) 0.3 % F
27) Zhongfang 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 divisional profit margin?
A) 33.3 % F
B) 33.3 % U
C) 0.3 % U
D) 0.3 % F
28) Which of the following statements is TRUE about performance reporting?
A) Reports should focus on whom to blame for unfavorable variances.
B) Managers should not be held accountable for uncontrollable variances.
C) Only unfavorable variances need to be explained.
D) Every variance, regardless of magnitude, must be investigated.
29) Responsibility accounting performance reports are prepared by which types of business units?
A) Cost centers only
B) Investment centers and revenue centers only
C) Cost centers, revenue centers, and profit centers
D) Investment centers only
30) Zhongfang Consumer Products has a small car division that operates as a profit center. Below is a partially
completed performance report for the first quarter. Please complete the report in the format below.
Profit Center Performance Report
31) Johnson Construction Materials Company has a sales office which sells concrete culvert pipe to property
developers. The sales office is a revenue center and must prepare a monthly performance report. Please complete
the performance report using the format and the data below:
Revenue Center Performance Report
32) Tavares Manufactured Homes Company has a sales division which submits a monthly performance report as a
revenue center. Please complete the report using the format and data below.
Revenue Center Performance Report – $K
33) Union Company’s corporate payroll department is a cost center, and submits monthly performance reports. In
the report below, there are both budgeted and actual data. Please use the format below and complete the report. The
percentage amounts should be rounded to the nearest one-tenth of a percent.
34) Westhaven Company has a warehousing unit which operates as a cost center. They prepare monthly
performance reports. Actual and budget data for February are shown here:
Cost Center
Flexible
Performance Report
Actual
Budget
Salary & benefits
$119,000
$120,000
Rent expense
94,500
90,000
Depreciation expense
23,200
24,000
Supply expense
11,890
12,000
Miscellaneous expense
8,120
8,000
$256,710
$254,000
Using the report format below, please complete the performance report.
Cost Center
Flexible
Flexible Budget
Performance Report
Actual
Budget
Variance
U/F
% variance
U/F
Salary & benefits
$119,000
$120,000
Rent expense
94,500
90,000
Depreciation expense
23,200
24,000
Supply expense
11,890
12,000
Other expense
8,120
8,000
$256,710
$254,000
Cost Center
Performance Report
Actual
U/F
% variance
Salary & benefits
$119,000
Depreciation expense
23,200
Supply expense
11,890
Other expense
8,120
$256,710
1) ROI (return on investment) focuses on the ratio of operating income to average assets.
2) ROI is calculated using income before taxes, interest expense, and other non-operating income.
3) The formula for ROI takes the total company net income and divides by assets.
4) Recreation Equipment Company has several divisions that are investment centers. Data for the Boat Division and
the Trailer Division are shown here:
Boat Division
Trailer Division
Operating income
$90,000
$36,000
Total assets at Jan 1
$670,000
$230,000
Total assets at Dec 31
$710,000
$220,000
With regard to using assets efficiently, the Boat Division has the higher ROI because it has the highest operating
income.
Beginning assets + ending assets
Divide by 2
Average assets
Operating income
ROI (op inc/avg assets)
5) ROI is used to compare various units of a company to other companies in the industry, but is NOT used to
compare various divisions within the same company because that would hinder creative management and
competitiveness within the company.
6) Profit margin is defined as operating income divided by sales.
7) Asset turnover is defined as the average total assets divided by the sales revenue.
8) The formula for ROI can be broken down as follows: ROI = profit margin x asset turnover.
9) Huntswell Corporation has two major division Agricultural Products and Industrial Products. Data for the year
just finished is as follows:
Agriculture Division
Industrial Division
Sales revenue
$140,000
$1,040,000
Operating income
$16,400
$220,000
Average assets
$300,000
$5,540,000
Target rate of return
4.0%
4.0%
If Huntswell wishes to identify the division that generated the highest earnings relative to its assets, that would be
the Industrial Division.
ROI
10) If upper management is NOT satisfied with a division’s current profit margin, they should reduce product costs
and operating expenses.
11) If upper management is NOT satisfied with a division’s asset turnover ratio, they should attempt to decrease
operating expenses in order to raise the turnover.
12) If a company division has a negative RI (residual income,) that means that the division did NOT use its assets as
effectively as management expected.
13) When a company is comparing the financial performance of various divisions, it may choose to focus on RI as
opposed to ROI because using RI tends to lead toward goal congruence between the division and the corporation.
14) If a corporate division makes large asset purchases, that would have the effect of lowering ROI.
15) Both RI and EVA calculate whether a corporate division generated operating income above the target set by the
business, but they do so from different perspectives.
16) The EVA calculation and the ROI calculation both use operating income before income tax because the income
tax expense is NOT relevant to either the EVA or the ROI measures.
17) Marcia Consumer Products has several divisions, including the Education Division and the Recreation Division.
Data on the two divisions are shown here:
Education Division
Recreation Division
Current ROI
9.2%
10.0%
Current WACC
8.0%
8.0%
Operating income
$110,000
$200,000
Effective tax rate
20.0%
20.0%
Average total assets
$1,200,000
$2,000,000
Current liabilities
$30,000
$30,000
These data show that the Recreation Division has generated returns in excess of those expected by the investors and
creditors, but the Education Division has not.
Operating income
Effective tax rate
Income tax expense
Average total assets
Current liabilities
Total assets less liabilities
WACC
EVA
18) Corporate divisions, like the media division of Amazon.com, are normally considered:
A) cost centers.
B) revenue centers.
C) profit centers.
D) investment centers.
19) Which of the following statements BEST describes the responsibilities of the head of an investment center?
A) He or she is mainly responsible for controlling costs.
B) He or she is responsible for maximizing income and using assets efficiently.
C) He or she is responsible chiefly for achieving as much operating income as possible.
D) He or she is responsible solely for the efficient and productive use of invested assets.
20) An investment center is responsible for new investments. Which of the following is a good example of the kind
of investments for which an investment center is responsible?
A) Purchasing raw materials for production
B) Creating a new product line with separate manufacturing facilities
C) Replacing worn-out manufacturing equipment
D) Performing maintenance work on facilities
21) To evaluate the performance of an investment center, a business needs KPIs that measure:
A) manufacturing productivity and product defect rate.
B) operating income and the efficient use of assets.
C) customer satisfaction and market share.
D) generation of sales revenues and control of operating expenses.