ARE 119 Chapter 14
32) What is the budgeted contribution margin per composite unit for the budgeted mix? A) $19
00 B) $19.40 C) $20.00 D) $20.30 Answer: D Explanation: D) Budgeted contribution margin per composite unit for the budgeted mix = [$21 × (17,000 / (17,000 + 3,000))] + [$16 × (3,000 / (17,000 + 3,000))] = $20.30 Diff: 3 Objective: 6 AACSB: Application of knowledge 33) For May, Woodruff will report a(n) ________. A) favorable sales-mix variance B) unfavorable sales-mix variance C) favorable sales-volume variance D) unfavorable sales-volume variance Answer: B Explanation: B) Budgeted contribution margin per composite unit for the actual mix = [$21 × (18,000) / (18,000 + 4,500))] + [$16 × (4,500 / (18,000 + 4,500))] = $20.00 Budgeted contribution margin per composite unit for the budgeted mix = [$21 × (17,000 / (17,000 + 3,000))] + [$16 × (3,000 / (17,000 + 3,000))] = $20.30 Diff: 3 Objective: 6 AACSB: Application of knowledge
31) What is the budgeted contribution margin per composite unit for the actual mix? A) $19
00 B) $20.30 C) $19.40 D) $20.00 Answer: D Explanation: D) Budgeted contribution margin per composite unit for the actual mix = [$21 × (18,000) / (18,000 + 4,500))] + [$16 × (4,500 / (18,000 + 4,500))] = $20.00 Diff: 3 Objective: 6 AACSB: Application of knowledge
Price per pound $13
00 $16.00 $13.00 $16.00 Variable cost per pound 5.50 8.50 6.50 8.00
Objective 14
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Required: Compute the sales-mix variance and the sales-quantity variance by type of vacuum cleaner, and in total
(in terms of the contribution margin) Answer: Budgeted sales-mix percentage: Zenith = 20,000/100,000 = 20% House-Helper = 80,000/100,000 = 80%
26) For the contribution margin, what is the total static-budget variance? A) $220 favorable B) $330 unfavorable C) $1,000 favorable D) $550 favorable Answer: D Explanation: D) Total static-budget variance = [(4,400 × $1
00) + (3,300 × $1.50)] - [(3,740 × $1.80) + (3,960 × $0.80)] = $9,350 - $9,900 = $550 favorable Diff: 3 Objective: 6 AACSB: Application of knowledge 27) For the contribution margin, what is the total flexible-budget variance? A) $330 favorable B) $220 favorable C) $550 favorable D) $1,000 unfavorable Answer: B Explanation: B) Actual contribution margin for the month = ((3,740 × $1.80) + (3,960 × $0.80) = $9,900 Contribution margin for the flexible budget = (3,740 × $1.00) + (3,960 × $1.50) = $9,680 Total flexible-budget variance = $9,900 - $9,680 = $220 favorable Diff: 3 Objective: 6 AACSB: Application of knowledge
25) What is the contribution margin for the flexible budget? A) $9,900 B) $9,680 C) $10,560 D) $9,350 Answer: B Explanation: B) Contribution margin for the flexible budget = (3,740 × $1
00) + (3,960 × $1.50) = $9,680 Diff: 2 Objective: 6 AACSB: Application of knowledge
b
1. Pay increased attention to the profitable customers Stephan and Burnett. 2. Seek ways of reducing costs and increasing revenues for the loss accounts of J Jackson and Paul Saas. Work with the customers so their behavior reduces overall costs. Reduce costs with better scheduling. Maybe a different fee schedule needs to be implemented depending on the age of the house, the distance to the home, if the repair is preventive or an emergency, etc. Determine whether the operating income pattern will probably continue or not and why. 3. As a last resort, the company may want to discontinue the Jackson account if the customer does not agree to a fee increase and the operating loss pattern is expected to continue.
43) What is the total sales-mix variance in terms of the contribution margin? A) $200,000 unfavorable B) $390,000 unfavorable C) $900,000 favorable D) $1,260,000 favorable Answer: B Explanation: B) Sales-mix variance Actual units of all products sold Actual sales-mix % - Budgeted sales-mix% Budgeted CM per unit Sales-mix variance Victor 40,000 × (0
125 - 0.200) × $260 = $780,000 U House-Mate 30,000 × (0.875 - 0.800) × $130 = $390,000 F Total $390,000 U Diff: 3 Objective: 6 AACSB: Application of knowledge
Actual Budget Colombian Blue Mountain Colombian Blue Mountain Sales in pounds 15,000 lbs
17,000 lbs. 13,500 lbs. 18,000 lbs
Sales-quantity variance Actual units of all products sold - Budgeted units of all products sold Budgeted sales-mix % Budgeted CM per unit Sales-quantity variance Zenith (86,000 - 100,000) × 0
2 × $230 = $644,000 U House-Helper (86,000 - 100,000) × 0.8 × $190 = $2,128,000 U Total $2,772,000 U Diff: 3 Objective: 6 AACSB: Application of knowledge
Total sales-volume variance in terms of the contribution margin = $4,680,000 - $5,850,000 = $1,170,000 favorable Diff: 3 Objective: 6 AACSB: Application of knowledge 42) What is the total sales-quantity variance in terms of the contribution margin? A) $200,000 unfavorable B) $540,000 favorable C) $960,000 unfavorable D) $1,560,000 favorable Answer: D Explanation: D) Budgeted sales-mix percentage: Victor = 6,000/30,000 = 0
20 House-Mate = 24,000/30,000 = 0.80 Actual sales-mix percentage: Victor = 5,000/40,000 = 0.125 House-Mate = 35,000/40,000 = 0.875
Sales-quantity variance Actual units of all products sold - Budgeted units of all products sold Budgeted sales-mix % Budgeted CM per unit Sales-quantity variance Victor (40,000 - 30,000) × 0
20 × $260 = $ 520,000 F House-Mate (40,000 - 30,000) × 0.80 × $130 = $ 1,040,000 F Total $1,560,000 F Diff: 3 Objective: 6 AACSB: Application of knowledge
Sales-mix variance Actual units of all products sold Actual sales-mix % - Budgeted sales-mix % Budgeted CM per unit Sales-mix variance Zenith 86,000 × (0
3 - 0.2) × $230 = $989,000 F House-Helper 86,000 × (0.7 - 0.8) × $190 = $817,000 U Total $ 172,000 F
Actual Budget Calamine Capity Calamine Capity Sales in pounds 3,740 lbs
3,960 lbs. 4,400 lbs. 3,300 lbs Price per pound $2.80 $2.80 $2.00 $3.00 Variable cost per pound 1.00 2.00 1.00 1.50 Contribution margin $1.80 $0.80 $1.00 $1.50
Objective 14
4
Objective 14
5
Contribution margin $7
50 $7.50 $6.50 $8.00
Objective 14
6
Sales-mix variance Actual units of all products sold Actual sales-mix % - Budgeted sales-mix % Budgeted CM per unit Sales-mix variance Residential 414,000 × (0
6 - 0.65) × $100 = $2,070,000 U Office 414,000 × (0.4 - 0.35) × $80 = $1,656,000 F Total $ 414,000 U
Sales-quantity variance Actual units of all products sold - Budgeted units of all products sold Budgeted sales-mix % Budgeted CM per unit Sales-quantity variance Residential (414,000 - 400,000) × 0
65 × $100 = $ 910,000 F Office (414,000 - 400,000) × 0.35 × $80 = $ 392,000 F Total $1,302,000 F Diff: 3 Objective: 6 AACSB: Application of knowledge 61) What are the two components of the sales-volume variance? Answer: The two components of sales-volume variance are (a) the difference between actual sales mix and budgeted sales mix (the sales-mix variance) and (b) the difference between actual unit sales and budgeted unit sales (the sales-quantity variance). Diff: 2 Objective: 6 AACSB: Analytical thinking
37) What is the total sales-mix variance in terms of the contribution margin? A) $290,000 favorable B) $260,000 favorable C) $530,000 favorable D) $790,000 favorable Answer: B Explanation: B) Standard = 4,000 × (
7 - .8) × $400 = $160,000 U Super = 4,000 × (.3 - .2) × $1,050 = $420,000 F $260,000 F Diff: 3 Objective: 6 AACSB: Application of knowledge Answer the following questions using the information below:
35) What is the total sales-volume variance in terms of the contribution margin? A) $260,000 unfavorable B) $260,000 favorable C) $530,000 unfavorable D) $790,000 favorable Answer: D Explanation: D) Standard = (2,800 - 2,400) × $400 = $ 160,000 F Super = (1,200 - 600) × $1,050 = 630,000 F $790,000 F Diff: 3 Objective: 6 AACSB: Application of knowledge 36) What is the total sales-quantity variance in terms of the contribution margin? A) $260,000 favorable B) $790,000 favorable C) $530,000 favorable D) $290,000 favorable Answer: C Explanation: C) Standard = (4,000 - 3,000) × 0
8 × $400 = $320,000 F Super = (4,000 - 3,000) × 0.2 × $1,050 = 210,000 F $530,000 F Diff: 3 Objective: 6 AACSB: Application of knowledge
29) What is the budgeted contribution margin per composite unit for the budgeted mix? A) $13
80 B) $15.00 C) $15.36 D) $15.80 Answer: B Explanation: B) Budgeted contribution margin per composite unit for the budgeted mix = [$11 × (4,950) / (4,950 + 3,300))] + [$21 × (3,300 / (4,950 + 3300))] = $15.00 Diff: 3 Objective: 6 AACSB: Application of knowledge 30) For May, the company will report a(n) ________. A) favorable sales-mix variance B) unfavorable sales-mix variance C) favorable sales-volume variance D) unfavorable sales-volume variance Answer: A Explanation: A) Budgeted contribution margin per composite unit for the actual mix = [$11 × (4,420 / (4,420 + 4,080))] + [$21 × (4,080) / (4,420 + 4,080))] = $15.80 Budgeted contribution margin per composite unit for the budgeted mix = [$11 × (4,950) / (4,950 + 3,300))] + [$21 × (3,300 / (4,950 + 3300))] = $15.00 Diff: 3 Objective: 6 AACSB: Analytical thinking
28) What is the budgeted contribution margin per composite unit for the actual mix? A) $13
80 B) $15.00 C) $15.36 D) $15.80 Answer: D Explanation: D) Budgeted contribution margin per composite unit for the actual mix = [$11 × (4,420 / (4,420 + 4,080))] + [$21 × (4,080) / (4,420 + 4,080))] = $15.80 Diff: 3 Objective: 6 AACSB: Application of knowledge
34) What is the budgeted sales-mix percentage for the Standard and the Super vacuum cleaners, respectively? A) 0
80 and 0.20 B) 0.70 and 0.30 C) 0.20 and 0.80 D) 0.30 and 0.70 Answer: A Explanation: A) Budgeted sales-mix percentage for the Standard = 2,400 / (2,400 + 600) = 0.80 Budgeted sales-mix percentage for the Super = 600 / (2,400 + 600) = 0.20 Diff: 1 Objective: 6 AACSB: Application of knowledge
24) What is the actual contribution margin for the month? A) $9,680 B) $9,350 C) $10,560 D) $9,900 Answer: D Explanation: D) Actual contribution margin for the month = (3,740 × $1
80) + (3,960 × $0.80) = $9,900 Diff: 2 Objective: 6 AACSB: Application of knowledge
DVDRs [(110,000 × 0
80) × $75 = $6,600,000 (110,000 × 0.79) × $75] = 6,517,500 $ 82,500 favorable
3) Sales-mix variance = $250,000 (F), sales-volume variance = $4,50,000 (U), flexible-budget variance = $200,000(F), market-size variance = $30,000(U), calculate the sales-quantity variance
A) $170,000 (U) B) $200,000 (U) C) $30,000 (U) D) $700,000 (U) Answer: D Explanation: D) Sales-quantity variance = $450,000 (U) - $250,000 (F) = $700,000 (U) Diff: 3 Objective: 6 AACSB: Application of knowledge
4) Market-share variance = $350,000 (U); Market-size variance = $300,000 (F); Sales-mix variance = $600,000 (F); calculate the sales-quantity variance
A) $350,000 (F) B) $650,000 (F) C) $550,000 (F) D) $50,000 (U) Answer: D Explanation: D) Sales-quantity variance = $350,000 (U) + $300,000(F) = $50,000 (U) Diff: 2 Objective: 6 AACSB: Application of knowledge
5) If deciding whether to eliminate a distribution channel, allocating corporate-sustaining costs to distribution channels ________
A) helps define cost reduction possibilities B) gives the misleading impression of potential cost savings C) identifies administrative inefficiencies D) evaluates the effectiveness of sales personnel Answer: B Diff: 3 Objective: 3 AACSB: Analytical thinking
5) Sales-mix variance = $300,000 (F), sales-quantity variance = $200,000(F), flexible-budget variance = $100,000(F), market-size variance = $50,000(U), calculate the sales-volume variance
A) $650,000 (F) B) $450,000 (F) C) $550,000 (F) D) $500,000 (F) Answer: D Explanation: D) Sales-volume variance = $300,000 (F) + $200,000(F) = $500,000 (F) Diff: 3 Objective: 6 AACSB: Application of knowledge 6) Flexible-budget variance = $200,000 (F); sales-volume variance = $350,000 (U); sales-mix variance = $300,000 (F); calculate the static-budget variance. A) $150,000 (U) B) $300,000 (U) C) $300,000 (F) D) $250,000 (F) Answer: A Explanation: A) Static-budget variance = $200,000 (F) + $350,000 (U) = $150,000 (U) Diff: 3 Objective: 6 AACSB: Application of knowledge
17) ________ categorizes costs related to customers into different cost pools on the basis of either different classes of cost drivers or different degrees of difficulty in determining the cause-and-effect (or benefits-received) relationships
A) Customer-profitability analysis B) Customer revenues C) Customer cost hierarchy D) Price discounting Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking
17) An unfavorable sales-mix variance would most likely be caused by ________
A) a new competitor providing better service in the high-margin product sector B) a competitor having distribution problems with high-margin products C) the company offering low-margin products at a higher price D) the company experiencing quality-control problems that get negative media coverage of low-margin products Answer: A Diff: 3 Objective: 6 AACSB: Analytical thinking
21) The sales-volume variance is the difference between ________
A) a sales-mix variance and the corresponding sales-quantity variance B) a flexible-budget amount and the corresponding static-budget amount C) a market-share variance and the corresponding market-size variance D) a sales-mix variance and the corresponding market size variance Answer: B Diff: 3 Objective: 6 AACSB: Analytical thinking
3) Which of the following is an example of division-sustaining costs? A) research and development cost B) corporate administration costs C) corporate brand advertising D) shipment costs Answer: A Diff: 2 Objective: 3 AACSB: Analytical thinking 4) For companies in which full allocation is not followed, corporate sustaining costs are ________
A) allocated to divisions using cause-and-effect relationship B) allocated to customers using cause-and-effect relationship C) added to aggregate operating incomes of the divisions D) subtracted as a lump-sum amount after aggregating operating incomes of the divisions Answer: D Diff: 3 Objective: 3 AACSB: Analytical thinking
9) The static-budget variance is the difference between ________
A) an actual result and the corresponding budgeted amount in the static budget B) the budget amount in the static budget and the amount in the flexible budget C) an actual result and the flexible budget amount D) the static budget amount and the sales-volume variance Answer: A Diff: 1 Objective: 6 AACSB: Analytical thinking 10) More insight into the static-budget variance can be gained by subdividing it into ________. A) the sales-mix variance and the sales-quantity variance B) the market-share variance and the market-size variance C) the flexible-budget variance and the sales-volume variance D) the flexible-budget variance and the sales-mix variance Answer: C Diff: 1 Objective: 6 AACSB: Analytical thinking
5) NOT allocating some corporate costs to divisions and products results in ________
A) an increase in overall corporate profitability B) the sum of individual product profitability being less than overall company profitability C) the sum of individual product profitability being greater than overall company profitability D) a decrease in overall corporate profitability Answer: C Diff: 3 Objective: 5 AACSB: Analytical thinking 6) When the cost pools are homogeneous ________. A) the number of needed cost pools will be more B) the costs in the cost pool have a similar cause-and-effect or benefits-received relationship with the cost-allocation base C) managers should not allocate both variable costs and costs that are fixed in the short-run D) there will be a greater variety of cause-and-effect, benefits-received, or fair-and-equitable relationship with the cost-allocation base Answer: B Diff: 2 Objective: 5 AACSB: Analytical thinking
5) Corporate-sustaining costs ________
A) are common to all individual customers B) have a clear cause-and-effect relationship with several cost-allocation bases C) should be allocated for decisions regarding reducing customer costs D) evaluates the effectiveness of sales personnel Answer: A Diff: 3 Objective: 4 AACSB: Analytical thinking
10) To allocate corporate costs to divisions, the allocation base used should ________
A) be an output unit-level base B) have the best cause-and-effect relationship with the costs C) combine administrative costs and human resource management costs D) allocate the fixed costs only Answer: B Diff: 3 Objective: 5 AACSB: Analytical thinking 11) Corporate administrative costs allocated to a division cost pool are most likely to be ________. A) output unit-level costs B) facility-sustaining costs C) product-sustaining costs D) batch-level costs Answer: B Diff: 1 Objective: 5 AACSB: Analytical thinking
9) Customers making large contributions to the profitability of the company should ________
A) be treated the same as other customers because all customers are important B) receive a higher level of attention from the company than less profitable customers C) be charged higher prices for the same products than less profitable customers D) not be offered the volume-based price discounts offered to less profitable customers Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking 10) To reduce distribution-channel costs, a company could ________. A) improve the efficiency of the ordering process B) make fewer customer visits C) eliminate distribution to retailers and only service wholesalers D) reduce product-handling costs Answer: C Diff: 3 Objective: 1 AACSB: Analytical thinking
11) The static-budget variance will be favorable, when ________
A) budgeted unit sales are more than actual unit sales B) the actual contribution margin is less than the static-budget contribution margin C) the actual sales mix shifts toward the less profitable units D) the flexible-budget and the sales-volume variance are favorable Answer: D Diff: 3 Objective: 6 AACSB: Analytical thinking
7) To guide cost allocation decisions, the fairness or equity criterion ________
A) considers reasonableness as a matter of judgment rather than an operational criterion B) allocates cost among the beneficiaries in proportion to the benefits each receives C) is used more frequently than any other criteria D) is the primary criterion used in activity-based costing Answer: A Diff: 2 Objective: 4 AACSB: Analytical thinking 8) To guide cost allocation decisions, the ability to bear criterion ________. A) is the primary criterion used in activity-based costing B) allocates cost among the beneficiaries in proportion to the benefits each receives. C) results in subsidizing products that are not profitable D) is used more frequently than any other criteria Answer: C Diff: 2 Objective: 4 AACSB: Analytical thinking
6) A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different ________
A) contribution-margin ratios of products B) distribution-channel costs C) levels of cause-and-effect relationships D) division-sustaining costs Answer: C Diff: 2 Objective: 4 AACSB: Analytical thinking
4) ABC systems use the concept of a ________ to identify the cost drivers that best demonstrate the cause-and-effect relationship between each activity and the costs in the related cost pool
A) cost hierarchy B) customer -cost analysis C) cost allocation D) variance analysis Answer: A Diff: 1 Objective: 4 AACSB: Analytical thinking
2) The reporting and assessment of revenues earned from customers and the costs incurred to earn those revenues is ________
A) creditor-age analysis B) customer-profitability analysis C) debtor-cost analysis D) customer-turnover analysis Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking
7) Costs incurred to process orders would most likely be classified as a ________
A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking
4) The cost of visiting customers would most likely be classified as a ________
A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking 5) Costs incurred to handle each unit sold would most likely be classified as a ________. A) customer output unit-level cost B) customer batch-level cost C) customer-sustaining cost D) corporate-sustaining cost Answer: A Diff: 1 Objective: 1 AACSB: Analytical thinking
2) Salary of top management and general-administration costs is an example of ________
A) customer output unit-level costs B) customer batch-level costs C) distribution-channel costs D) corporate-sustaining costs Answer: D Diff: 1 Objective: 3 AACSB: Analytical thinking
3) Customer revenues and ________ are the determinants of customer profitability
A) customer profile B) customer costs C) customer location D) customer industry Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking
6) The cost of the manager of a retail distribution channel would most likely be classified as a ________
A) customer-sustaining cost B) distribution-channel cost C) customer batch-level cost D) corporate-sustaining cost Answer: B Diff: 1 Objective: 1 AACSB: Analytical thinking
16) Costs of activities to sell each unit to a customer is an example of ________
A) customer-sustaining costs B) division-sustaining costs C) customer output unit-level costs D) distribution-channel costs Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking
22) The sales-quantity variance is calculated by ________
A) deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the actual mix B) deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix C) deducting budgeted contribution margin based on budgeted units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix D) deducting budgeted contribution margin based on budgeted units at budgeted mix from budgeted contribution margin based on actual units sold at the budgeted mix Answer: D Diff: 3 Objective: 6 AACSB: Analytical thinking
8) The sales-mix variance is calculated by ________
A) deducting budgeted contribution margin based on actual units at budgeted mix from budgeted contribution margin based on actual units sold at the actual mix B) deducting budgeted contribution margin based on budgeted units at actual mix from budgeted contribution margin based on actual units sold at the budgeted mix C) deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on budgeted units sold at the budgeted mix D) deducting budgeted contribution margin based on actual units at actual mix from budgeted contribution margin based on actual units sold at the actual mix Answer: A Diff: 3 Objective: 6 AACSB: Analytical thinking
1) An advantage of using a bar chart to visualize customer profitability is that ________
A) differences in commissions paid to sales persons stand out B) the number of "unprofitable" customers stand out C) trends in the volume of purchases become apparent D) company can get ideas about new products or improved methods Answer: B Diff: 3 Objective: 2 AACSB: Analytical thinking
2) Dropping an unprofitable customer will ________
A) eliminate long-run costs assigned to that customer B) eliminate most short-run costs assigned to that customer C) decrease long-run profitability D) increase the potential to cross-sell other products that are more desirable Answer: B Diff: 3 Objective: 2 AACSB: Analytical thinking
1) Allocation of corporate-sustaining costs is useful for ________
A) evaluating the performance of salespersons with individual customer accounts B) motivating distribution-channel management C) focusing on the cause-and-effect relationships with the cost-allocation bases D) motivating division managers to examine how corporate costs are planned and controlled Answer: D Diff: 3 Objective: 3 AACSB: Analytical thinking
6) When corporate-sustaining costs are fully allocated to distribution channels, then the sum of the distribution-channel operating incomes is ________
A) greater than companywide operating income B) equal to companywide operating income C) equal to customer-level operating income D) greater than customer-level operating income Answer: B Diff: 3 Objective: 3 AACSB: Analytical thinking
1) Costs which are NOT economically feasible to trace but which are related to a cost object are known as ________
A) incremental costs B) marginal costs C) indirect costs D) variable costs Answer: C Diff: 1 Objective: 1 AACSB: Analytical thinking
1) Costs in the cost pool having the same or a similar cause-and-effect or benefits-receiving relationship with the cost-allocation base can be achieved in adopting ________
A) indirect cost pools B) homogeneous cost pools C) hetrogeneous cost pools D) direct cost pools Answer: B Diff: 3 Objective: 5 AACSB: Application of knowledge
7) When individual activities within a cost pool have a similar relationship with the cost driver, the cost pool ________
A) is not considered for customer-profitability analysis B) need multiple cost drivers C) is considered a homogeneous cost pool D) is considered an allocated cost pool Answer: C Diff: 2 Objective: 5 AACSB: Analytical thinking
2) To guide cost allocation decisions, the cause-and-effect criterion ________
A) is used less frequently than the other criteria B) is the primary criterion used in activity-based costing C) considers fairness as a matter of judgment rather than an operational criterion D) advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it Answer: B Diff: 2 Objective: 4 AACSB: Analytical thinking 3) To guide cost allocation decisions, the benefits-received criterion ________. A) generally uses the cost driver as the cost allocation base B) advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it C) is the primarily used criterion in activity-based costing D) may use an allocation base of division revenues to allocate advertising costs Answer: D Diff: 3 Objective: 4 AACSB: Analytical thinking
3) The chart used to express customer profitability is called the whale curve because ________
A) it is forward-bending at the point where customers start to become profitable and thus resembles a humpback whale B) it is forward-bending at the point where customers start to become unprofitable and thus resembles a humpback whale C) it is backward-bending at the point where customers start to become profitable and thus resembles a humpback whale D) it is backward-bending at the point where customers start to become unprofitable and thus resembles a humpback whale Answer: D Diff: 2 Objective: 2 AACSB: Analytical thinking
14) The difference between budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix is the ________
A) material-mix variance B) flexible-budget variance C) sales-mix variance D) sales-volume variance Answer: C Diff: 3 Objective: 6 AACSB: Analytical thinking 15) The sales-mix variance will be unfavorable when ________. A) the actual sales mix shifts toward the less profitable units B) the contribution margin per composite unit for the actual mix is greater than the budgeted mix C) the actual unit sales are less than the budgeted unit sales D) the actual contribution margin is less than the static-budget contribution margin Answer: A Diff: 3 Objective: 6 AACSB: Analytical thinking
8) Homogeneous cost pool leads to ________
A) more accurate costs of a given cost object B) more resources being assigned to that cost object C) the need for more cost drivers D) the need for different cost allocation bases to allocate the costs Answer: A Diff: 2 Objective: 5 AACSB: Analytical thinking
7) Corporate-sustaining costs should be allocated to ________
A) motivate changes in customer behavior B) evaluate distribution-channel managers C) determine the selling price that will cover all costs D) find the cause-and-effect relationship Answer: C Diff: 3 Objective: 3 AACSB: Analytical thinking
2) While allocating corporate costs to divisions ________
A) only fixed costs should be allocated B) no homogeneous cost pools should be constructed C) all the costs in the cost pool should not have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base D) allocate both variable and fixed costs to divisions and then to customers Answer: D Diff: 3 Objective: 5 AACSB: Analytical thinking Animer Inc. provides the following information.
8) To improve customer profitability, companies should track ________
A) only the final invoice price of a sale B) the volume of the products purchased by each customer C) the location of each customer D) the customer profile Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking
14) The above interest costs would be considered a(n) ________
A) output unit-level cost B) facility-sustaining cost C) product-sustaining cost D) batch-level cost Answer: C Diff: 2 Objective: 5 AACSB: Analytical thinking 15) Which corporate costs should be allocated to divisions? A) costs incurred to process orders B) cost related to homogeneous cost pools only C) product-handling costs D) both fixed and variable costs Answer: D Diff: 2 Objective: 5 AACSB: Analytical thinking
1) The sales-quantity variance can be decomposed into ________
A) sales-mix variance and sales-volume variance B) static-budget variance and flexible-budget variance C) flexible-budget variance and sales-volume variance D) market-share variance and market-size variance Answer: D Diff: 2 Objective: 6 AACSB: Analytical thinking 2) Flexible budget contribution margin is equal to ________. A) actual contribution margin per unit times actual units sold of each product B) actual contribution margin per unit times budgeted units sold of each product C) budgeted contribution margin per unit times budgeted units sold of each product D) budgeted contribution margin per unit times actual units sold of each product Answer: D Diff: 2 Objective: 6 AACSB: Analytical thinking
7) The sales-volume variance is subdivided into ________
A) sales-mix variance and static-budget variance B) sales-mix variance and sales-quantity variance C) flexible-budget variance and fixed-budget variance D) market-share variance and static-budget variance Answer: B Diff: 2 Objective: 6 AACSB: Analytical thinking
19) The sales-quantity variance will be favorable when ________
A) sales-volume variance and flexible-budget variance are favorable B) actual units of all products sold exceed budgeted units of all products sold C) the actual sales mix shifts towards the more profitable units D) static-budget variance and flexible-budget variance are favorable Answer: B Diff: 3 Objective: 6 AACSB: Analytical thinking 20) The sales-quantity variance will be unfavorable when ________. A) the composite unit for the actual mix is less than for the budgeted mix B) the actual unit sales are less than the budgeted unit sales C) the actual contribution margin per unit is less than the static-budget contribution margin D) the actual sales mix shifts toward the less profitable units Answer: B Diff: 3 Objective: 6 AACSB: Analytical thinking
16) The sales-mix variance will be favorable when ________
A) the actual contribution margin is greater than the static-budget contribution margin B) actual unit sales are more than budgeted unit sales C) the actual sales mix shifts toward the less profitable units D) the budgeted contribution margin for actual sales mix is greater than for the budgeted mix Answer: D Diff: 3 Objective: 6 AACSB: Analytical thinking
23) The sales-quantity variance results from a difference between ________
A) the actual sales mix and the budgeted sales mix B) the actual quantity of units sold and the budgeted quantity of unit sales in the static budget C) actual contribution margin and the budgeted contribution margin D) actual market size in units and the budgeted market size in units Answer: B Diff: 3 Objective: 6 AACSB: Analytical thinking Answer the following questions using the information below:
1) When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees, the best criteria are ________
A) the cause-and-effect and the ability-to bear criteria B) the cause-and-effect and the benefits-received criteria C) the benefits-received and the fairness criteria D) the fairness and the ability-to-bear criteria Answer: B Diff: 2 Objective: 4 AACSB: Analytical thinking
11) A challenge to using cost-benefit criteria for allocating costs is that ________
A) the costs of designing and implementing complex cost allocations are not readily apparent B) the benefits of making better-informed pricing decisions are difficult to measure C) cost systems are being simplified and fewer multiple cost-allocation bases are being used D) the costs of collecting and processing information keep spiraling upward Answer: B Diff: 3 Objective: 4 AACSB: Analytical thinking
14) The costs of all six value-chain functions should be included when determining ________
A) the prime cost of a product B) the selling price of a product C) the contribution margin per unit D) the cost of capital Answer: B Diff: 3 Objective: 1 AACSB: Analytical thinking 15) Which purpose of cost allocation is used to encourage sales representatives to push high-margin products or services? A) to provide information for economic decisions B) to motivate managers and other employees C) to justify costs or compute reimbursement D) to measure income and assets for reporting to external parties Answer: B Diff: 2 Objective: 1 AACSB: Analytical thinking
12) More insight into the sales-volume variance can be gained by subdividing it into ________
A) the sales-mix variance and the sales-quantity variance B) the market-share variance and the sales-mix variance C) the flexible-budget variance and the market-size variance D) the flexible-budget variance and the sales-mix variance Answer: A Diff: 2 Objective: 6 AACSB: Analytical thinking
11) Price discounts are influenced by ________
A) the volume of product purchased B) the prime cost of production C) the operational budget D) the contribution -margin per unit Answer: A Diff: 3 Objective: 1 AACSB: Analytical thinking
9) In cost allocation, R&D costs are used ________
A) to provide information for economic decisions B) to report to external parties when using generally accepted accounting principles C) to calculate costs of a government contract D) to calculate prime cost of a product Answer: A Diff: 3 Objective: 5 AACSB: Analytical thinking
13) The budgeted contribution margin per composite unit for the budgeted sales mix can be computed by dividing the ________
A) total budgeted contribution margin by the actual total units B) total budgeted contribution margin by the total budgeted units C) actual total contribution margin by the total actual total units D) actual total contribution margin by the total budgeted units Answer: B Diff: 2 Objective: 6 AACSB: Analytical thinking
18) A shift towards a mix of products with a lower contribution margin per unit will most likely result in a(n) ________
A) unfavorable sales-mix variance B) unfavorable sales-quantity variance C) favorable sales-mix variance D) favorable sales-quantity variance Answer: A Diff: 2 Objective: 6 AACSB: Analytical thinking
12) Managers use customer-profitability analysis report to ensure that ________
A) unpaid invoices are categorized according to age by due date B) costs related to customers are segmented into different cost pools on the basis of different types of cost drivers or cost-allocation bases C) customers making large contributions to the operating income of a company receive a high level of attention from the company D) cost allocation of indirect cost is in place Answer: C Diff: 2 Objective: 1 AACSB: Analytical thinking
4) Discontinuing an unprofitable customer ________
A) will eliminate all corporate costs assigned to and may result in losing more revenues relative to costs saved B) will eliminate all costs assigned to and may result in gaining more revenues relative to costs saved C) will not eliminate all costs assigned to and may result in losing more revenues relative to costs saved D) will not eliminate all corporate costs assigned to and may result in gaining more revenues relative to costs saved Answer: C Diff: 3 Objective: 2 AACSB: Analytical thinking 5) It is common to find that a small number of customers generate a high percentage of operating income. Answer: TRUE Diff: 2 Objective: 2 AACSB: Analytical thinking
25) Should a company allocate its corporate costs to divisions? Answer: Some companies allocate all corporate costs to divisions because corporate costs are incurred to support division activities
Allocating all corporate costs motivates division managers to examine how corporate costs are planned and controlled. Also, companies that want to calculate the full cost of products in order to make some economic decision must allocate corporate costs to indirect-cost pools of divisions.
38) Explain the importance of customer-profitability analysis
Answer: Customer-profitability analysis is the reporting and assessment of revenues earned from customers and the costs incurred to earn those revenues. An analysis of customer differences in revenues and costs reveals why differences exist in the operating income earned from different customers. Managers use this information to ensure that customers making large contributions to the operating income of a company receive a high level of attention from the company and that loss-making customers do not use more resources than the revenues they provide. Diff: 3 Objective: 1 AACSB: Analytical thinking
12) Today, companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases
Answer: FALSE Explanation: Companies are moving toward more-detailed and more-complex cost allocations because today technology can capture these costs in a relatively inexpensive manner. Diff: 2 Objective: 4 AACSB: Analytical thinking 13) Using the fairness criterion, the costs are allocated among the beneficiaries in proportion to the benefits each receives. Answer: FALSE Explanation: Using the benefits received criterion, the costs are allocated among the beneficiaries in proportion to the benefits each receives. Diff: 2 Objective: 4 AACSB: Analytical thinking
23) Costs of displays at customer sites is an example of customer batch-level costs
Answer: FALSE Explanation: Costs of displays at customer sites is an example of customer-sustaining costs. Diff: 2 Objective: 1 AACSB: Analytical thinking
33) Corporate-sustaining costs are costs of activities to support individual customers, regardless of the number of units or batches of product delivered to the customer
Answer: FALSE Explanation: Customer-sustaining costs are costs of activities to support individual customers, regardless of the number of units or batches of product delivered to the customer. Diff: 2 Objective: 1 AACSB: Analytical thinking 34) In general, distribution-channel costs are more easily influenced by customer actions than customer batch-level costs. Answer: FALSE Explanation: In general, customer batch-level costs are more easily influenced by customer actions than distribution-channel costs. Diff: 3 Objective: 1 AACSB: Analytical thinking
25) All customers are equally important to a company and should receive equal levels of attention
Answer: FALSE Explanation: Customers should receive a level of attention from the company that matches their contribution to the company's profitability. Diff: 2 Objective: 1 AACSB: Analytical thinking
35) If one of five distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely be reduced by 20%
Answer: FALSE Explanation: If one of five distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely not be affected. Diff: 3 Objective: 1 AACSB: Analytical thinking 36) Colise Services is a repair-service company specializing in small household jobs. Each client pays a fixed monthly service fee based on the number of rooms in the house. Records are kept on the time and material costs used for each repair. The following profitability data apply to five customers:
6) Managers who utilize customer profitability charts should drop customers that generate a negative customer operating income, since dropping an unprofitable customer will automatically cause overall income to increase
Answer: FALSE Explanation: Managers who utilize customer profitability charts should not drop customers that generate a negative customer operating income, because dropping an unprofitable customer may not cause overall income to increase. Diff: 2 Objective: 2 AACSB: Analytical thinking
24) Once a cost pool has been established, it should NOT need to be revisited or revised
Answer: FALSE Explanation: Once a cost pool has been established, it is often necessary to revisit it or revise it. Diff: 2 Objective: 5 AACSB: Analytical thinking
26) Price discounts must be uniform among all customers
Answer: FALSE Explanation: Price discounts will depend on the size of the purchase and the importance of the customer. Diff: 2 Objective: 1 AACSB: Analytical thinking 27) There are two elements that influence customer profitability - revenues and costs. Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking
18) To analyze customer profitability, corporate-sustaining costs should be allocated to customers
Answer: FALSE Explanation: The allocation of corporate-sustaining costs serves no purpose in assessing customer profitability, decision making, performance evaluation, or motivation. Diff: 2 Objective: 1 AACSB: Analytical thinking
17) The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit approach
Answer: FALSE Explanation: The benefits of implementing a more-complex cost allocation system are difficult to measure. Diff: 2 Objective: 4 AACSB: Analytical thinking 18) Briefly describe the four criteria used to guide cost-allocation decisions. Answer: 1. Cause and effect - managers identify the variables that cause resources to be consumed. 2. Benefits received - managers identify the beneficiaries of the outputs of the cost object. 3. Fairness or equity - establishing a selling price that is deemed fair by contracting parties. 4. Ability to bear - advocates allocating costs in proportion to the cost object's ability to bear costs allocated to it. Diff: 1 Objective: 4 AACSB: Analytical thinking
16) The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation
Answer: FALSE Explanation: The cause-and-effect or benefits-received criteria is considered superior when the purpose of cost allocation is motivation. Diff: 2 Objective: 4 AACSB: Analytical thinking
19) When there is a lesser degree of homogeneity, fewer cost pools are required to accurately explain the use of company resources
Answer: FALSE Explanation: The greater the degree of homogeneity, the fewer the cost pools required to accurately explain the use of company resources. Diff: 2 Objective: 5 AACSB: Analytical thinking
51) The market-share variance is the difference in actual contribution margin for actual market size in units caused solely by actual market share being different from budgeted market share
Answer: FALSE Explanation: The market-share variance is the difference in budgeted contribution margin for actual market size in units caused solely by actual market share being different from budgeted market share. Diff: 2 Objective: 6 AACSB: Analytical thinking 52) The sales-mix variance can be explained in terms of the budgeted contribution margin per composite unit of the sales mix. Answer: TRUE Diff: 2 Objective: 6 AACSB: Analytical thinking
55) The sales quantity variance is the difference between budgeted contribution margin based on actual units sold of all products at the budgeted mix, and contribution margin in the flexible budget
Answer: FALSE Explanation: The sales quantity variance is the difference between budgeted contribution margin based on actual units sold of all products at the budgeted mix, and contribution margin in the static budget. Diff: 2 Objective: 6 AACSB: Analytical thinking 56) Synor Coffee, Inc., sells two types of coffee, Colombian and Blue Mountain. The monthly budget for U.S. coffee sales is based on a combination of last year's performance, a forecast of industry sales, and the company's expected share of the U.S. market. The following information is provided for March:
53) The sales-quantity variance is favorable when budgeted unit sales exceed actual unit sales
Answer: FALSE Explanation: The sales-quantity variance is unfavorable when budgeted unit sales exceed actual unit sales. Diff: 3 Objective: 6 AACSB: Analytical thinking
8) Which of the following is a corporate-sustaining cost? A) design costs B) corporate brand advertising C) shipment costs D) research and development costs Answer: B Diff: 3 Objective: 3 AACSB: Analytical thinking 9) There is a direct cause-and effect relationship between division-sustaining costs and customer or sales manager's actions
Answer: FALSE Explanation: There is no direct cause-and effect relationship between division-sustaining costs and customer or sales manager's actions. Diff: 2 Objective: 3 AACSB: Analytical thinking
28) Companies that only record the invoice price can usually track the magnitude of price discounting
Answer: FALSE Explanation: To track discounting, the discount must be recorded. Diff: 2 Objective: 1 AACSB: Analytical thinking
14) Under the cause and effect criterion, reasonableness is a matter of judgment rather than an operational criterion
Answer: FALSE Explanation: Under the fairness or equity criterion, reasonableness is a matter of judgment rather than an operational criterion. Diff: 2 Objective: 4 AACSB: Analytical thinking
21) Tracking price discounts by customer and by salesperson helps improve customer profitability
Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking
22) Customer-profitability analysis is the reporting and assessment of revenues earned from customers and the costs incurred to earn those revenues
Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking
32) A customer cost hierarchy may include distribution-channel costs
Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking
19) Costs of activities related to a group of units sold to a customer is termed as customer batch-level costs
Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking 20) A price discount is the reduction in selling price below list selling price to encourage customers to purchase more quantities. Answer: TRUE Diff: 1 Objective: 1 AACSB: Analytical thinking
10) Bar charts and a whale curve are some of the common ways of displaying the results of customer-profitability analysis
Answer: TRUE Diff: 1 Objective: 2 AACSB: Analytical thinking 11) Why would a manager perform customer-profitability analysis? Answer: Customer profitability analysis highlights how individual customers contribute to profitability. It helps managers determine whether customers who are contributing significantly to profits are receiving a comparable level of attention from the organization. Diff: 2 Objective: 2 AACSB: Analytical thinking
15) When using the cause-and-effect criterion, cost drivers are selected as the cost allocation bases
Answer: TRUE Diff: 1 Objective: 4 AACSB: Analytical thinking
50) A composite unit is a hypothetical unit with weights based on the mix of individual units
Answer: TRUE Diff: 1 Objective: 6 AACSB: Analytical thinking
44) The static-budget variance is the difference between an actual result and the corresponding budgeted amount in the static budget
Answer: TRUE Diff: 1 Objective: 6 AACSB: Analytical thinking 45) The flexible-budget variance is the difference between an actual result and the flexible-budget amount based on the level of output actually achieved in the budget period. Answer: TRUE Diff: 2 Objective: 6 AACSB: Analytical thinking
24) Customer-sustaining costs is the costs of activities to support individual customers, regardless of the number of units or batches of product delivered to the customer
Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking
29) A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different cost drivers
Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking
30) An activity-based costing system may focus on customers rather than products
Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking
31) A customer cost hierarchy may include customer-sustaining costs
Answer: TRUE Diff: 2 Objective: 1 AACSB: Analytical thinking
7) It is possible that the smallest customer in terms of revenue is the most profitable customer
Answer: TRUE Diff: 2 Objective: 2 AACSB: Analytical thinking
8) With the use of a bar chart, the number of "unprofitable" customers and the magnitude of their losses are apparent
Answer: TRUE Diff: 2 Objective: 2 AACSB: Analytical thinking
9) The chart used to express customer profitability is called the whale curve because it is backward-bending at the point where customers start to become unprofitable and thus resembles a humpback
Answer: TRUE Diff: 2 Objective: 2 AACSB: Analytical thinking
16) Corporate brand advertising and general administration costs are examples of corporate costs
Answer: TRUE Diff: 2 Objective: 5 AACSB: Analytical thinking
17) Allocating all corporate costs motivates division managers to examine how corporate costs are planned and controlled
Answer: TRUE Diff: 2 Objective: 5 AACSB: Analytical thinking
20) If a cost pool is homogeneous, the cost allocations using that pool will be the same as they would be if costs of each individual activity in that pool were allocated separately
Answer: TRUE Diff: 2 Objective: 5 AACSB: Analytical thinking
23) Advances in information-gathering technology make it more likely that multiple cost-pool systems will pass the cost-benefit test
Answer: TRUE Diff: 2 Objective: 5 AACSB: Analytical thinking
21) Costs in a homogeneous cost pools have the same or a similar cause-and-effect or benefits-received relationship with the cost-allocation base
Answer: TRUE Diff: 2 Objective: 5 AACSB: Analytical thinking 22) An individual cost item can be simultaneously a direct cost of one cost object and an indirect cost of another cost object. Answer: TRUE Diff: 3 Objective: 5 AACSB: Analytical thinking
46) Managers can gain more insight about the static-budget variance by subdividing it into the flexible-budget variance and the sales-volume variance
Answer: TRUE Diff: 2 Objective: 6 AACSB: Analytical thinking
47) The market-share variance is the difference in budgeted contribution margin for actual market size in units caused solely by actual market share being different from budgeted market share
Answer: TRUE Diff: 2 Objective: 6 AACSB: Analytical thinking
48) Additional insight can be gained by dividing the sales-volume variance into the sales-mix variance and the sales-quantity variance
Answer: TRUE Diff: 2 Objective: 6 AACSB: Analytical thinking
54) The sales-mix variance is the difference between budgeted contribution margin for the actual sales mix and the budgeted contribution margin for the budgeted sales mix
Answer: TRUE Diff: 2 Objective: 6 AACSB: Analytical thinking
18) Companies that want to calculate the full cost of products must allocate all corporate costs to divisions
Answer: TRUE Diff: 3 Objective: 5 AACSB: Analytical thinking
49) A favorable sales-mix variance arises when the actual sales-mix percentage exceeds the budgeted sales-mix percentage
Answer: TRUE Diff: 3 Objective: 6 AACSB: Analytical thinking
60) The Chair Company manufactures two modular types of chairs: one for the residential market, and the other for the office market
Budgeted and actual operating data for the year 2015 are:
The Fortise Corporation manufactures two types of vacuum cleaners, the Victor for commercial building use and the House-Mate for residences
Budgeted and actual operating data for the year 2015 were as follows:
Answer: a
Budgeted contribution margin per unit: Residential = $26,000,000/260,000 = $100 Office = $11,200,000/140,000 = $80 Flexible-budget contribution margin: Residential 248,400 × $100 = $24,840,000 Office 165,600 × $80 = $13,248,000 $38,088,000 Static-budget variance is $1,596,000 unfavorable = $37,200,000 - $35,604,000 Sales-volume variance is $888,000 favorable = $37,200,000 - $38,088,000 Flexible-budget variance is $2,484,000 unfavorable = $38,088,000 - $35,604,000 b. Actual sales-mix percentage: Residential = 248,400/414,000 = 60% Office = 165,600/414,000 = 40% Budgeted sales-mix percentage: Residential = 260,000/400,000 = 65% Office = 140,000/400,000 = 35%
Capity Tea Products has an exclusive contract with British Distributors
Calamine and Capity are two brands of teas that are imported and sold to retail outlets. The following information is provided for the month of March:
Required: a
Calculate the actual contribution margin for the month. b. Calculate the contribution margin for the static budget. c. Calculate the contribution margin for the flexible budget. d. Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin. Answer: a. Actual contribution margin: 15,000 × $7.50 = $ 112,500 17,000 × $7.50 = 127,500 $240,000
Required: a
Calculate the contribution margin for the flexible budget. b. Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin. Answer: Budgeted contribution margin per unit: ZENITH = $4,600,000/20,000 = $230 House-Helper = $15,200,000/80,000 = $190
Required: a
Compute the operating income for each of the five customers. b. What options should Colise Services consider in light of the customer-profitability results? c. What problems might Colise Services encounter in accurately estimating the operating costs of each customer? Answer: a. Customer Revenues Customer Costs Operating income Marveline Burnett $360 $270 $ 90 J Jackson 240 366 (126) Roger Jones 96 90 6 Paul Saas 90 132 (42) Becky Stephan 420 264 156
Required: Compute the following variances in terms of contribution margin: a
Compute the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance. b. Compute the sale-mix variance and the sales-quantity variance by type of chair, and in total.
12) What actions might be taken with an unprofitable customer? Answer: An unprofitable customer might be dropped as a customer, might be charged more for some of the resources of the company that it is using in excess of other customers, or he/she might be counseled on how to use less resources and be restored to profitability in the future
Diff: 2 Objective: 2 AACSB: Analytical thinking
Other companies allocate only those corporate costs, such as corporate human resources, that are widely perceived as either causally related to division activities or provide explicit benefits to divisions
Diff: 2 Objective: 5 AACSB: Analytical thinking 26) For each cost pool listed select an appropriate allocation base from the list below. An allocation base may be used only once. Assume a manufacturing company.
62) What are the two components of the sales-quantity variance? Answer: The two components of the the sales-quantity variance are (a) the difference between the actual market share and the budgeted market share (the market-share variance) and (b) the difference between the actual market size in units and the budgeted market size in units (the market-size variance)
Diff: 3 Objective: 6 AACSB: Analytical thinking
c
Flexible-budget contribution margin: 15,000 × $6.50 = $ 97,500 17,000 × $8.00 = 136,000 $233,500
a
Flexible-budget contribution margin: 21,500 × $230 = $ 4,945,000 60,000 × $190 = 11,400,000 $16,345,000
10) Why do managers prepare cost-hierarchy-based operating incomes statements? Answer: Cost-hierarchy-based operating income statements allocate only those costs that will be affected by actions at a particular hierarchical level
For example, costs such as sales-order costs and shipment costs are allocated to customers because customer actions can affect these costs, but costs of managing the wholesale channel are not allocated to customers because changes in customer behavior will have no effect on these costs. Diff: 2 Objective: 3 AACSB: Analytical thinking
1
Number of employees per department 2. Employee wages and salaries per department 3. Number of sales orders 4. Hours of operation of each production department 5. Machine hours by department 6. Operations costs of each department 7. Hours of computer use per month per department 8. Number of units sold
The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division
Of a $13,000,000 bond issuance, the Electric Mixer Division used $9,100,000 and the Electric Lamp Division used $3,900,000 for expansion. Interest costs on the bond totaled $975,000 for the year.
Some companies do not allocate corporate costs to divisions because these costs are not controllable by division managers
Particularly if performance evaluations are based on these allocations, a company will often not choose to allocate certain corporate costs that are not perceived as being controllable by division management.
c
Problems in accurately estimating operating costs of each customer include: 1. The basic underlying records may not be accurate. 2. Some repair personnel may be efficient and more experienced, others may be less experienced and slower, and still others may "chit-chat" more with the clients than others. 3. Costs that are allocated to more than one customer may be distorting operating income. Diff: 2 Objective: 1 AACSB: Application of knowledge 37) How can a company's revenues and costs differ across customers? Answer: Revenues differ because of differences in the quantity purchased and price discounts. Costs differ because different customers place different demands on a company's resources in terms of processing sales orders, making deliveries, and customer support. Diff: 3 Objective: 1 AACSB: Analytical thinking
b
Static-budget contribution margin: 13,500 × $6.50 = $ 87,750 18,000 × $8.00 = 144,000 $231,750
b
Static-budget variance = $19,800,000 - $19,865,000= $1,750 favorable Flexible-budget variance = $16,345,000 - $19,865,000= $3,520,000 favorable Sales-volume variance = $19,800,000 - $16,345,000 = $3,455,000 unfavorable Diff: 3 Objective: 6 AACSB: Application of knowledge 59) The Octova Corporation manufactures two types of vacuum cleaners: the ZENITH for commercial building use and the House-Helper for residences. Budgeted and actual operating data for the year 20X5 are as follows:
d
Static-budget variance = $231,750 - $240,000 = $8,250 favorable Flexible-budget variance = $233,500 - $240,000 = $6,500 favorable Sales-volume variance = $231,750 - $233,500 = $1,750 favorable Diff: 3 Objective: 6 AACSB: Application of knowledge 57) Gevorg's Electronics manufactures TVs and DVDRs. During April, the following activities occurred:
What conclusion can be drawn from the above data? Which steps the manager of the company can take? Answer: The company managers may decide to strictly enforce its volume-based price discounting policy
The company may also require its salespeople to obtain approval for giving large discounts to customers who do not normally qualify for them. In addition, the company could track future sales to customers who have received sizable price discounts on the basis of their "high growth potential." For example, managers should track future sales to Customer C to see if the $100-per-computer discount translates into higher future sales. Diff: 3 Objective: 1 AACSB: Application of knowledge Objective 14.2
The Corata Appliance Manufacturing Corporation manufactures two vacuum cleaners, the Standard and the Super
The following information was gathered about the two products:
c
Total sales-volume variance = $38,500 favorable + $1,082,400 favorable = $1,229,140 favorable Diff: 3 Objective: 6 AACSB: Application of knowledge 58) The Octova Corporation manufactures two types of vacuum cleaners: the ZENITH for commercial building use and the House-Helper for residences. Budgeted and actual operating data for the year 20X5 are as follows:
________ a
Vice President of Finance's office expenses ________ b. Computer operations used in conjunction with manufacturing ________ c. Personnel Department ________ d. Sales-order costs ________ e. Energy costs Answer: a. Vice President of Finance's office expenses Operations costs of each department b. Computer operations used in conjunction with manufacturing Hours of computer use per month per department c. Personnel Department Number of employees per department d. Sales-order costs Number of sales orders e. Energy costs Hours of operation of each production department Diff: 2 Objective: 5 AACSB: Analytical thinking
Required: Compute the following variances in terms of the contribution margin
a. Determine the total sales-mix variance. b. Determine the total sales-quantity variance. c. Determine the total sales-volume variance. Answer: a. TVs [(110,000 × 0.20) × $40] = $880,000 [(110,000 × 0.21) × $40] = 924,000 $ 44,000 unfavorable
Total sales-mix variance = $44,000 unfavorable + $82,500 favorable = $38,500 favorable
b. TVs {[(110,000 - 94,000) × 0.21] × $40] = $134,400 favorable DVDRs {[(110,000 - 94,000) × 0.79] × $75] = 948,000 favorable Total sales-quantity variance $1,082,400 favorable