Question

9)Attley Inc. has three separate divisions: Division A, Division B, and Division C. Information about the three divisions follows:

	Division A	Division B	Division C
Operating income	$ 26,750	$121,000	$22,400
Average operating assets	$250,000	$412,000	$83,000

The company has recently implemented a new performance evaluation system. Based on this new system, a division manager would only receive a bonus if the ROI of the division was greater than 25% and residual income was in excess of $20,000. If management uses a cost of capital rate of 18%, which division manager(s) would be eligible for a bonus?(5pts)

a. Division A and Division B.

b. Division B and Division C.

c. Division A only.

d. Division B only.

e. None of the answer choices is correct.

10)An advantage of return on investment (ROI) as a performance measure is that:(5pts)

a. operating assets available at year-end is used in the denominator.

b. it is calculated the same way by different organizations.

c. net income is used in the numerator.

d. it includes the use of assets to evaluate performance.

e. None of the answer choices is correct.

5)

Flatland Company applies fixed manufacturing overhead costs to products based on direct labor hours. Information for the month of April appears below. Flatland expects to produce and sell 18,000 units for the month.

Below is budget information for Flatland Company.

Budgeted fixed overhead costs	$270,000
Budgeted direct labor hours	90,000 hours
Standard direct labor hours per unit	5 hours per unit
Actual production	17,000
Actual fixed overhead costs	$280,000

NOTE: Use the information above to answer questions 5, 6, and 7

Question 5: Based on this information, what is the standard cost per direct labor hour (rounded to the nearest cent)? 5pts)

a. $5.29

b. $3.11

c. $3.00

d. $15.00

e. None of the answer choices is correct.

6)Refer to the Exhibit in question 5. Based on this information, what is the fixed overhead spending variance? (5pts)

a. $15,000 favorable

b. $10,000 unfavorable

c. $15,000 unfavorable

d. $10,000 favorable

e. None of the answer choices is correct.

7)Refer to the Exhibit for question 5. Based on this information, what is the fixed overhead production volume variance? (5pts)

a. $15,000 unfavorable

b. $10,000 favorable

c. $15,000 favorable

d. $10,000 unfavorable

e. None of the answer choices is correct.

Answer 1

9. Answer is d. Division B only.

It is because Division B only offers ROI of greater than 25% and residual Income greater than $20000.

Division B:

ROI = 121000/412000 = 29.37%.

Residual Income = 121000 - (412000*18%) = $46840.

10. Answer is d. it includes the use of assets to evaluate performance.

Evaluation of financial performance based on the amount of Investment/Asset Value is appropriate. This is one of the best method of evaluating financial performance accepted worldwide.

5. Answer is c. $3.00

Standard cost per direct labor hour = $270000/90000Hours = $3.

6. Answer is b. $10,000 unfavorable.

fixed overhead spending variance = 270000(Budgeted) - 280000(Actual) = -$10000

Here negative represents Unfavourable due to higher spending.

7. Answer is a. $15000 Unfavourable.

Budgeted Fixed Overhead recovery per unit = $270000/18000 = $15

fixed overhead production volume variance = 270000(Budgeted) - 255000(Recovered 17000*$15) = $15000

Here positive represents Unfavourable due to lower recovery.