Ch15 – Customer Profitability & Sales | Test Bank

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Horngren's Cost Accounting: A Managerial Emphasis, 17e by, Global Edition Datar/Rajan

Chapter 15 Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Objective 15.1

1) Which of the following customer related costs are NOT economically feasible to trace but are related to a customer?

A) the additional cost of selling one more unit to a new customer who has never done business with the firm before

B) the direct material costs of a product that a customer has purchased

C) the allocation of the cost of travel, lodgings, and meals that result from visiting customers at their locations

D) the shipping costs that result from shipping a package by Fed Ex to a customer when the technology allows a direct match of that cost to the direct material and direct labor costs of the product

Diff: 1

Objective: 1

AACSB: Analytical thinking

2) Which of the following is a reason to gather data, associate revenues with each customer and develop a system of allocating costs to each customer?

A) GAAP requirements for external reporting including 10K disclosures

B) to assure that highly profitable customers get the appropriate level of care and attention

C) ABC systems cannot be implemented without customer-profitability reporting

D) to assure that more resources are committed to loss-making customers in an attempt to retain all customers

Diff: 1

Objective: 1

AACSB: Analytical thinking

3) Segmenting customers as a result of customer profitability analysis would be done by which of the following groupings?

A) geography such as state or by zip code

B) operating income

C) gross margin

D) total direct costs

Diff: 2

Objective: 1

AACSB: Analytical thinking

4) Which of the following classifications would the cost of visiting customers would most likely fit into?

A) customer output unit-level cost

B) customer batch-level cost

C) customer-sustaining cost

D) corporate-sustaining cost

Diff: 1

Objective: 1

AACSB: Analytical thinking

5) Which of the following classifications would costs incurred to handle each unit sold fit into?

A) customer output unit-level cost

B) customer batch-level cost

C) customer-sustaining cost

D) corporate-sustaining cost

Diff: 1

Objective: 1

AACSB: Analytical thinking

6) Which of the following classifications would be the most appropriate for the cost of the manager of a retail distribution channel?

A) customer-sustaining cost

B) distribution-channel cost

C) customer batch-level cost

D) corporate-sustaining cost

Diff: 1

Objective: 1

AACSB: Analytical thinking

7) Which of the following classifications would be the most relevant for the costs incurred to process orders?

A) customer output unit-level cost

B) customer batch-level cost

C) customer-sustaining cost

D) corporate-sustaining cost

Diff: 1

Objective: 1

AACSB: Analytical thinking

8) A division of a major furniture maker specializes in custom bedroom sets; manufactured to the specific needs of the customer and tracks the warehouse storage, shipping and packing and other distribution costs of each order it fulfills. Which of the following cost classifications would those costs fall into:

A) customer-sustaining costs

B) customer batch-level costs

C) distribution-channel costs

D) division-sustaining costs

Diff: 2

Objective: 1

AACSB: Analytical thinking

9) A division of a major publisher specializes in publishing and selling study guides for college students through distribution channels such as major bookstore chains, independent bookstores, and ecommerce sites. Sales representatives activities include visits to bookstores that carry the products and setup of eye catching in-store displays. Which of the following cost classifications would those activities fall into:

A) customer-sustaining costs

B) customer batch-level costs

C) distribution-channel costs

D) division-sustaining costs

Diff: 2

Objective: 1

AACSB: Analytical thinking

10) To improve customer profitability, companies should track which of the following?

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

Diff: 2

Objective: 1

AACSB: Analytical thinking

11) 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

Diff: 2

Objective: 1

AACSB: Analytical thinking

12) 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

Diff: 3

Objective: 1

AACSB: Analytical thinking

13) Price discounts are most influenced by:

A) the volume of product purchased

B) the prime cost of production

C) the operational budget

D) the contribution -margin per unit

Diff: 3

Objective: 1

AACSB: Analytical thinking

14) Managers use a 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

Diff: 2

Objective: 1

AACSB: Analytical thinking

15) Which of the following illustrates a purpose for allocating costs to cost objects?

A) to provide information for cost-control and pricing decisions

B) to provide information to customers

C) to determine marginal cost

D) to measure capital expenditure

Diff: 2

Objective: 1

AACSB: Analytical thinking

16) How is value-engineering relevant to a well done customer profitability analysis, especially when an ABC system is utilized to calculate customer profits (or losses)?

A) ABC will satisfy GAAP and provide input into value-engineering decisions.

B) ABC offers the opportunity to analyze the costs of activities assigned to each customer and to determine if improvements can be made to optimize profits.

C) Customer profitability analysis will reveal that the cost drivers of less profitable customers are the problem and that value-engineering is the solution.

D) Only value-added activities will be shown in the cost analysis and thus all other costs will be eliminated via value-engineering.

Diff: 3

Objective: 1

AACSB: Analytical thinking

17) 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

Diff: 2

Objective: 1

AACSB: Analytical thinking

18) Which of the following classifications of costs in the customer-cost hierarchy would be most appropriate for the costs of activities to sell each unit to a customer?

A) customer-sustaining costs

B) division-sustaining costs

C) customer output unit-level costs

D) distribution-channel costs

Diff: 2

Objective: 1

AACSB: Analytical thinking

19) ________ 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

Diff: 1

Objective: 1

AACSB: Analytical thinking

20) Which of the following could be interpreted by customers as an unethical practice?

A) discount pricing via an e-commerce site based on customer data collected via cookies

B) discount pricing based on volume purchasing available to all customers

C) discount pricing from effects of a selling companies sales person incentive/performance plan

D) poor negotiation skills of a sales representative

Diff: 2

Objective: 1

AACSB: Ethical understanding and reasoning

21) To analyze customer profitability, corporate-sustaining costs should be allocated to customers.

Diff: 2

Objective: 1

AACSB: Analytical thinking

22) Costs of activities related to a group of units sold to a customer is termed as customer batch-level costs.

Diff: 1

Objective: 1

AACSB: Analytical thinking

23) A price discount is the reduction in selling price below list selling price to encourage customers to purchase more quantities.

Diff: 1

Objective: 1

AACSB: Analytical thinking

24) Tracking price discounts by customer and by salesperson helps improve customer profitability.

Diff: 1

Objective: 1

AACSB: Analytical thinking

25) Customer-profitability analysis is the reporting and assessment of revenues earned from customers and the costs incurred to earn those revenues.

Diff: 1

Objective: 1

AACSB: Analytical thinking

26) Costs of displays at customer sites is an example of customer batch-level costs.

Diff: 2

Objective: 1

AACSB: Analytical thinking

27) 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.

Diff: 2

Objective: 1

AACSB: Analytical thinking

28) All customers are equally important to a company and should receive equal levels of attention.

Diff: 2

Objective: 1

AACSB: Analytical thinking

29) Price discounts must be uniform among all customers.

Diff: 2

Objective: 1

AACSB: Analytical thinking

30) There are two elements that influence customer profitability - revenues and costs.

Diff: 2

Objective: 1

AACSB: Analytical thinking

31) Companies that only record the invoice price can usually track the magnitude of price discounting.

Diff: 2

Objective: 1

AACSB: Analytical thinking

32) A customer cost hierarchy categorizes costs related to customers into different cost pools on the basis of different cost drivers.

Diff: 2

Objective: 1

AACSB: Analytical thinking

33) An activity-based costing system may focus on customers rather than products.

Diff: 2

Objective: 1

AACSB: Analytical thinking

34) A customer cost hierarchy may include customer-sustaining costs.

Diff: 2

Objective: 1

AACSB: Analytical thinking

35) A customer cost hierarchy may include distribution-channel costs.

Diff: 1

Objective: 1

AACSB: Analytical thinking

36) 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.

Diff: 2

Objective: 1

AACSB: Analytical thinking

37) In general, distribution-channel costs are more easily influenced by customer actions than customer batch-level costs.

Diff: 3

Objective: 1

AACSB: Analytical thinking

38) If one of five distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely be reduced by 20%.

Diff: 3

Objective: 1

AACSB: Analytical thinking

39) 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:

Customer Revenues Customer Costs

Marveline Burnett $360 $270

J Jackson 240 366

Roger Jones 96 90

Paul Saas 90 132

Becky Stephan 420 264

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?

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

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.

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

40) How can a company's revenues and costs differ across customers?

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

41) Explain the importance of customer-profitability analysis.

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

42) Consider revenues from three of Megafy's 10 wholesale customers in 2020:

What conclusions can be drawn from the above data? What steps can the manager of the company take?

Diff: 3

Objective: 1

AACSB: Application of knowledge

Objective 15.2

1) A financial analyst for Simon Manufacturing prepared the following report:

What is the cumulative customer-level operating income as a percentage of customer level operating income for the top 4 most profitable (operating income) customers?

A) 17.6%

B) 89.8%

C) 85.1%

D) 79.1%

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

Diff: 3

Objective: 2

AACSB: Analytical thinking

3) A financial analyst for Simon Manufacturing prepared the following report:

Which of the following conclusions can be drawn from the report?

A) All profitable customers achieve customer level operating income in excess of 20%

B) Customer B has the second highest operating income margin.

C) The cumulative customer-level operating income of the top eight customers represents about 105.2% of operating income.

D) All customers provide positive contribution towards profitability.

Diff: 3

Objective: 2

AACSB: Analytical thinking

4) Which of the following is true about 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

Diff: 3

Objective: 2

AACSB: Analytical thinking

5) Discontinuing an unprofitable customer should be solely done on the basis of profitability.

Diff: 2

Objective: 2

AACSB: Analytical thinking

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.

Diff: 2

Objective: 2

AACSB: Analytical thinking

7) It is possible that the smallest customer in terms of revenue is the most profitable customer.

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.

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.

Diff: 2

Objective: 2

AACSB: Analytical thinking

10) Bar charts and a whale curve are some of the common ways of displaying the results of customer-profitability analysis.

Diff: 1

Objective: 2

AACSB: Analytical thinking

11) Why would a manager perform customer-profitability analysis?

Diff: 2

Objective: 2

AACSB: Analytical thinking

12) What actions might be taken with an unprofitable customer?

Diff: 2

Objective: 2

AACSB: Analytical thinking

13) A statement attributed to Microsoft explains knowing which customers to keep happy (satisfied) is critical to success because "not all revenue dollars are endowed equally in profitability". Briefly explain what that means.

Diff: 2

Objective: 2

AACSB: Analytical thinking

Objective 15.3

1) Allocation of corporate-sustaining costs is useful for which of the following?

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

Diff: 3

Objective: 3

AACSB: Analytical thinking

2) Salary of top management and general-administration costs is an example of which of the following?

A) customer output unit-level costs

B) customer batch-level costs

C) distribution-channel costs

D) corporate-sustaining costs

Diff: 1

Objective: 3

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

Diff: 2

Objective: 3

AACSB: Analytical thinking

4) For companies in which full allocation is not followed, which of the following is true of corporate sustaining costs?

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

Diff: 3

Objective: 3

AACSB: Analytical thinking

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

Diff: 3

Objective: 3

AACSB: Analytical thinking

6) When corporate-sustaining costs are fully allocated to distribution channels, then the sum of the operating income from each distribution-channel is:

A) greater than company-wide operating income

B) equal to company-wide operating income

C) equal to customer-level operating income

D) greater than customer-level operating income

Diff: 3

Objective: 3

AACSB: Analytical thinking

7) A company has two distribution channels: wholesale and business sales. Which of the following costs would be allocated as distribution-channel-level costs when analyzing the profitability of customer distribution channels?

A) sales order costs

B) customer visit costs

C) salary of the wholesale distribution channel manager

D) corporate administration costs

Diff: 3

Objective: 3

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

Diff: 3

Objective: 3

AACSB: Analytical thinking

9) Some companies allocate only those corporate costs, division costs, or channel costs to customers that are widely perceived as:

A) causally influencing customer actions

B) contributing to the overall profitability of the company

C) necessary because of a multi-product sales mix

D) necessary to comply with laws and regulations

Diff: 1

Objective: 3

AACSB: Analytical thinking

10) There is a direct cause-and effect relationship between division-sustaining costs and customer or sales manager's actions.

Diff: 2

Objective: 3

AACSB: Analytical thinking

11) Using a hierarchical approach to assigning costs to customers and distribution channels dovetails with the different levels at which managers make decisions and evaluate performance.

Diff: 2

Objective: 3

AACSB: Analytical thinking

12) Why do managers prepare cost-hierarchy-based operating incomes statements?

Diff: 2

Objective: 3

AACSB: Analytical thinking

Objective 15.4

1) When the purpose of cost allocation is to provide information for economic decisions or to motivate managers and employees, which of the following would be the best criteria?

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

Diff: 2

Objective: 4

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

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

Diff: 3

Objective: 4

AACSB: Analytical thinking

4) What might explain why some managers advocate fully allocating all costs, including corporate costs to distribution channels and to customers?

A) all costs are incurred to support sales of products to customers

B) division managers can influence and control corporate costs

C) distribution channel managers can control corporate costs

D) all costs need to be considered to conduct adequate variance analysis

Diff: 1

Objective: 4

AACSB: Analytical thinking

5) Which of the following is true of 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

Diff: 3

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

Diff: 2

Objective: 4

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

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

Diff: 2

Objective: 4

AACSB: Analytical thinking

9) Which of the following criteria has the presumption that the more-profitable divisions have a greater ability to absorb corporate administration costs?

A) the fairness or equity criterion

B) the ability to bear criterion

C) the cause-and-effect criterion

D) the benefits-received criterion

Diff: 2

Objective: 4

AACSB: Analytical thinking

10) The primary criterion of cost allocation used in activity-based cost accounting is:

A) the fairness or equity criterion

B) the ability to bear criterion

C) the cause-and-effect criterion

D) the benefits-received criterion

Diff: 2

Objective: 4

AACSB: Analytical thinking

11) Which of the following would be considered a problematic method because it could be highly subjective and happen because of a manager's persuasiveness?

A) the fairness or equity criterion

B) the ability to bear criterion

C) the cause-and-effect criterion

D) the benefits-received criterion

Diff: 2

Objective: 4

AACSB: Analytical thinking

12) Which cost-allocation criterion is most likely to subsidize poor performers at the expense of the best performers?

A) the fairness or equity criterion

B) the benefits-received criterion

C) the ability to bear criterion

D) the cause-and-effect criterion

Diff: 2

Objective: 4

AACSB: Analytical thinking

13) Which of the following is a challenge to using cost-benefit criteria for allocating costs?

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

Diff: 3

Objective: 4

AACSB: Analytical thinking

14) Today, companies are simplifying their cost systems and moving toward less-detailed and less-complex cost allocation bases.

Diff: 2

Objective: 4

AACSB: Analytical thinking

15) Using the fairness criterion, the costs are allocated among the beneficiaries in proportion to the benefits each receives.

Diff: 2

Objective: 4

AACSB: Analytical thinking

16) Under the cause and effect criterion, reasonableness is a matter of judgment rather than an operational criterion.

Diff: 2

Objective: 4

AACSB: Analytical thinking

17) When using the cause-and-effect criterion, cost drivers are selected as the cost allocation bases.

Diff: 1

Objective: 4

AACSB: Analytical thinking

18) The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation.

Diff: 2

Objective: 4

AACSB: Analytical thinking

19) The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit approach.

Diff: 2

Objective: 4

AACSB: Analytical thinking

20) Briefly describe the four criteria used to guide cost-allocation decisions.

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

Objective 15.5

1) A company sets up cost pools for indirect cost allocation. Management sees clear cause-and-effect relationships between the incurrence of costs and the chosen the cost-allocation base. What other common relationships or basis with a cost allocation base might management utilize to allocate costs?

A) R&D expenses

B) benefits -received

C) capital investment in a related process

D) gross profit proportions

Diff: 3

Objective: 5

AACSB: Application of knowledge

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

Diff: 3

Objective: 5

AACSB: Analytical thinking

3) Dartmouth Building Products Inc. provides the following information.

Corporate advertising costs = $890,000

Division A – $4,800,000

Division B – $19,200,000

Number of ads run relevant on Division A products 800

Number of ads run relevant to Division B products 2,400

Assume that customers with higher revenues benefited more from corporate advertising costs than customers with lower revenues. What is the allocated corporate costs for Division A?

A) $667,500

B) $222,500

C) $178,000

D) $890,000

Diff: 2

Objective: 5

AACSB: Application of knowledge

4) Dartmouth Building Products Inc. provides the following information.

Corporate advertising costs = $830,000

Division A – $4,900,000

Division B – $11,433,333.3

Number of ads run on Division A products 300

Number of ads run on Division B products 900

Assume that customers with higher revenues benefited more from corporate advertising costs than customers with lower revenues. What is the allocated corporate costs for Division B?

A) $622,500

B) $355,714

C) $581,000

D) $249,000

Diff: 2

Objective: 5

AACSB: Application of knowledge

5) NOT allocating some corporate costs to divisions and products results in which of the following?

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

Diff: 3

Objective: 5

AACSB: Analytical thinking

6) When the cost pools are homogeneous which of the following will be true?

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

Diff: 2

Objective: 5

AACSB: Analytical thinking

7) When individual activities within a cost pool have a similar relationship with the cost driver, which of the following could be said about the cost pool?

A) the costs accumulated in the cost pool are not used for customer-profitability analysis

B) there is a need for need multiple cost drivers to allocate costs from the pool to customers

C) the cost pool is considered a homogeneous cost pool

D) the cost pool is considered contains only direct variable costs

Diff: 2

Objective: 5

AACSB: Analytical thinking

8) Homogeneous cost pool leads to which of the following?

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

Diff: 2

Objective: 5

AACSB: Analytical thinking

9) In cost allocation, R&D costs are used to:

A) provide information for economic decisions

B) report to external parties when using generally accepted accounting principles

C) calculate costs of a government contract

D) calculate prime cost of a product

Diff: 3

Objective: 5

AACSB: Analytical thinking

10) To allocate corporate costs to divisions, the ideal situation would be for the allocation base to:

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

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

Diff: 1

Objective: 5

AACSB: Analytical thinking

12) The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $17,000,000 bond issuance, the Electric Mixer Division used $9,400,000 and the Electric Lamp Division used $7,600,000 for expansion. Interest costs on the bond totaled $975,000 for the year. What amount of interest costs should be allocated to the Electric Mixer Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)

A) $627,841

B) $536,250

C) $7,600,000

D) $9,400,000

Diff: 2

Objective: 5

AACSB: Application of knowledge

13) The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $17,000,000 bond issuance, the Electric Mixer Division used $9,300,000 and the Electric Lamp Division used $7,700,000 for expansion. Interest costs on the bond totaled $1,000,000 for the year. What amount of interest costs should be allocated to the Electric Lamp Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)

A) $450,000

B) $547,059

C) $646,388

D) $7,700,000

Diff: 2

Objective: 5

AACSB: Application of knowledge

14) The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $14,000,000 bond issuance, the Electric Mixer Division used $9,300,000 and the Electric Lamp Division used $4,700,000 for expansion. Interest costs on the bond totaled $1,000,000 for the year.

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

Diff: 2

Objective: 5

AACSB: Analytical thinking

15) Which of the following is true about the process of making cost allocations?

A) the costs of designing and implementing a cost allocation system are less visible than the benefits of such a system

B) a cost benefit-analysis cannot be performance on cost allocation systems because the benefits are difficult to estimate

C) the costs of cost allocation systems is mostly the cost of collection

D) as the cost of collecting and processing cost allocation information decreases, it becomes more economically feasible to provide more detailed cost allocations

Diff: 2

Objective: 5

AACSB: Analytical thinking

16) Corporate brand advertising and general administration costs are examples of corporate costs.

Diff: 2

Objective: 5

AACSB: Analytical thinking

17) Allocating all corporate costs motivates division managers to examine how corporate costs are planned and controlled.

Diff: 2

Objective: 5

AACSB: Analytical thinking

18) Companies that want to calculate the full cost of products must allocate all corporate costs to divisions.

Diff: 3

Objective: 5

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.

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.

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.

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.

Diff: 3

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.

Diff: 2

Objective: 5

AACSB: Analytical thinking

24) Once a cost pool has been established, it should NOT need to be revisited or revised.

Diff: 2

Objective: 5

AACSB: Analytical thinking

25) Most companies do not allocate corporate costs to divisions because they are uncontrollable by the division managers.

Diff: 2

Objective: 5

AACSB: Analytical thinking

26) Should a company allocate its corporate costs to divisions?

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.

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

27) 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.

Allocation bases for which the information system can provide data:

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

Cost pools:

________ 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

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

Objective 15.6

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

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

Diff: 2

Objective: 6

AACSB: Analytical thinking

3) Sales-mix variance = $250,000 (F), sales-volume variance = $510,000 (U), flexible-budget variance = $200,000 (F), market-size variance = $34,000 (U), calculate the sales-quantity variance.

A) $760,000 (U)

B) $794,000 (U)

C) $226,000 (U)

D) $260,000 (U)

Diff: 3

Objective: 6

AACSB: Application of knowledge

4) Market-share variance = $390,000 (U); Market-size variance = $250,000 (F); Sales-mix variance = $660,000 (F); calculate the sales-quantity variance.

A) $390,000 (F)

B) $640,000 (F)

C) $20,000 (F)

D) $140,000 (U)

Diff: 2

Objective: 6

AACSB: Application of knowledge

5) Sales-mix variance = $310,000 (F), sales-quantity variance = $200,000 (F), flexible-budget variance = $140,000 (F), market-size variance = $90,000 (U), calculate the sales-volume variance.

A) $740,000 (F)

B) $540,000 (F)

C) $600,000 (F)

D) $510,000 (F)

Diff: 3

Objective: 6

AACSB: Application of knowledge

6) Flexible-budget variance = $240,000 (F); sales-volume variance = $350,000 (U); sales-mix variance = $310,000 (F); calculate the static-budget variance.

A) $110,000 (U)

B) $310,000 (U)

C) $310,000 (F)

D) $280,000 (F)

Diff: 3

Objective: 6

AACSB: Application of knowledge

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

Diff: 2

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

Diff: 3

Objective: 6

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

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

Diff: 1

Objective: 6

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

Diff: 3

Objective: 6

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

Diff: 2

Objective: 6

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

Diff: 2

Objective: 6

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

Diff: 3

Objective: 6

AACSB: Analytical thinking

15) The sales-mix variance will be unfavorable when which of the following occurs?

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

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

Diff: 3

Objective: 6

AACSB: Analytical thinking

17) An unfavorable sales-mix variance would most likely be caused by which of the following?

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

Diff: 3

Objective: 6

AACSB: Analytical thinking

18) A shift towards a higher proportion of sales 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

Diff: 2

Objective: 6

AACSB: Analytical thinking

19) The sales-quantity variance will be favorable when which of the following occurs?

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

Diff: 3

Objective: 6

AACSB: Analytical thinking

20) The sales-quantity variance will be unfavorable when which of the following occurs?

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

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

Diff: 3

Objective: 6

AACSB: Analytical thinking

22) Which of the following is the formula for the sales-quantity variance?

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

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

Diff: 3

Objective: 6

AACSB: Analytical thinking

24) 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:

Actual Budget

Calamine Capity Calamine Capity

Sales in pounds 3,820 lbs. 3,960 lbs. 4,400 lbs. 3,300 lbs

Price per pound $3.00 $3.30 $2.00 $3.00

Variable cost per pound 1.10 2.00 1.00 1.50

Contribution margin $1.90 $1.30 $1.00 $1.50

Budgeted and actual fixed corporate-sustaining costs are $1,850 and $2,300, respectively.

What is the actual contribution margin for the month?

A) $14,256

B) $10,142

C) $9,558

D) $12,406

Diff: 2

Objective: 6

AACSB: Application of knowledge

25) 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:

Actual Budget

Calamine Capity Calamine Capity

Sales in pounds 3,840 lbs. 3,980 lbs. 4,400 lbs. 3,300 lbs

Price per pound $3.00 $3.00 $2.00 $3.00

Variable cost per pound 1.10 2.20 1.00 1.50

Contribution margin $1.90 $0.80 $1.00 $1.50

Budgeted and actual fixed corporate-sustaining costs are $1,850 and $2,300, respectively. What is the contribution margin for the flexible budget?

A) $10,480

B) $9,810

C) $9,596

D) $12,330

Diff: 2

Objective: 6

AACSB: Application of knowledge

26) 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:

Actual Budget

Calamine Capity Calamine Capity

Sales in pounds 3,800 lbs. 3,990 lbs. 4,500 lbs. 3,500 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

Budgeted and actual fixed corporate-sustaining costs are $1,850 and $2,300, respectively.

For the contribution margin, what is the total static-budget variance?

A) $6,840 favorable

B) $282 unfavorable

C) $35 favorable

D) $282 favorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

27) 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:

Actual Budget

Calamine Capity Calamine Capity

Sales in pounds 3,740 lbs. 3,960 lbs. 4,400 lbs. 3,500 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

Budgeted and actual fixed corporate-sustaining costs are $1,850 and $2,300, respectively. For the contribution margin, what is the total flexible-budget variance?

A) $30 favorable

B) $220 favorable

C) $250 favorable

D) $250 unfavorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

28) Archoid's Flowering Plants provides the following information for the month of May:

Actual Budget

Tulips Geraniums Tulips Geraniums

Sales in units 5,000 4,100 4,950 3,300

Contribution margin per unit $12 $19 $11 $23

What is the budgeted contribution margin per composite unit for the actual mix? (Round any intermediary calculations two decimal places.)

A) $15.80

B) $17.60

C) $19.00

D) $16.40

Diff: 3

Objective: 6

AACSB: Application of knowledge

29) Archoid's Flowering Plants provides the following information for the month of May:

Actual Budget

Tulips Geraniums Tulips Geraniums

Sales in units 4,600 4,400 4,950 3,300

Contribution margin per unit $13 $19 $10 $22

What is the budgeted contribution margin per composite unit for the budgeted mix? (Round any intermediary calculations two decimal places.)

A) $16.12

B) $14.80

C) $19.00

D) $15.88

Diff: 3

Objective: 6

AACSB: Application of knowledge

30) Archoid's Flowering Plants provides the following information for the month of May:

Actual Budget

Tulips Geraniums Tulips Geraniums

Sales in units 4,420 4,200 4,950 3,300

Contribution margin per unit $15 $19 $10 $22

For May, the company will report a(n): (Round any intermediary calculations two decimal places.)

A) favorable sales-mix variance

B) unfavorable sales-mix variance

C) favorable market-share variance

D) unfavorable market-share variance

Diff: 3

Objective: 6

AACSB: Analytical thinking

31) Woodruff Flowering Plants provides the following information for the month of May:

Actual Budget

Fuchsia Dogwood Fuchsia Dogwood

Sales in units 21,000 4,500 18,000 3,100

Contribution margin per unit $23 $19 $22 $17

What is the budgeted contribution margin per composite unit for the actual mix? (Round any intermediary calculations two decimal places.)

A) $21.77

B) $21.92

C) $21.00

D) $21.10

Diff: 3

Objective: 6

AACSB: Application of knowledge

32) Woodruff Flowering Plants provides the following information for the month of May:

Actual Budget

Fuchsia Dogwood Fuchsia Dogwood

Sales in units 18,000 4,700 18,000 3,300

Contribution margin per unit $21 $18 $22 $17

What is the budgeted contribution margin per composite unit for the budgeted mix? (Round any intermediary calculations two decimal places.)

A) $20.17

B) $22.27

C) $20.96

D) $21.25

Diff: 3

Objective: 6

AACSB: Application of knowledge

33) Woodruff Flowering Plants provides the following information for the month of May:

Actual Budget

Fuchsia Dogwood Fuchsia Dogwood

Sales in units 19,000 4,500 19,000 3,000

Contribution margin per unit $23 $18 $22 $16

For May, Woodruff will report a(n):

A) favorable sales-mix variance

B) unfavorable sales-mix variance

C) favorable market-share variance

D) unfavorable market-share variance

Diff: 3

Objective: 6

AACSB: Application of knowledge

34) The Corata Appliance Manufacturing Corporation manufactures two vacuum cleaners, the Standard and the Super. The following information was gathered about the two products:

Standard Super

Budgeted sales in units 2,700 900

Budgeted selling price $600 $1,700

Budgeted contribution margin per unit $400 $1,050

Actual sales in units 3,200 1,500

Actual selling price $650 $1,680

What is the budgeted sales-mix percentage for the Standard and the Super vacuum cleaners, respectively?

A) 0.75 and 0.25

B) 0.68 and 0.32

C) 0.25 and 0.75

D) 0.32 and 0.68

Diff: 1

Objective: 6

AACSB: Application of knowledge

35) The Corata Appliance Manufacturing Corporation manufactures two vacuum cleaners, the Standard and the Super. The following information was gathered about the two products:

Standard Super

Budgeted sales in units 2,700 600

Budgeted selling price $600 $1,700

Budgeted contribution margin per unit $420 $1,060

Actual sales in units 2,800 1,200

Actual selling price $650 $1,680

What is the total sales-volume variance in terms of the contribution margin?

A) $678,000 unfavorable

B) $594,000 favorable

C) $636,000 unfavorable

D) $678,000 favorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

36) The Corata Appliance Manufacturing Corporation manufactures two vacuum cleaners, the Standard and the Super. The following information was gathered about the two products:

Standard Super

Budgeted sales in units 2,400 700

Budgeted selling price $600 $1,700

Budgeted contribution margin per unit $400 $1,070

Actual sales in units 3,000 1,300

Actual selling price $650 $1,680

What is the total sales-quantity variance in terms of the contribution margin? (Round intermediary calculations to two decimal places.)

A) $369,600 favorable

B) $295,320 favorable

C) $664,920 favorable

D) $74,280 favorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

37) The Corata Appliance Manufacturing Corporation manufactures two vacuum cleaners, the Standard and the Super. The following information was gathered about the two products:

Standard Super

Budgeted sales in units 2,700 900

Budgeted selling price $600 $1,700

Budgeted contribution margin per unit $700 $1,050

Actual sales in units 3,000 1,200

Actual selling price $650 $1,680

What is the total sales-mix variance in terms of the contribution margin? (Round intermediary calculations to two decimal places.)

A) $117,600 favorable

B) $58,800 favorable

C) $294,000 favorable

D) $176,400 favorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

38) 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 2020 were as follows:

Static Budget Victor House-Mate Total

Number sold 6,000 27,000 33,000

Contribution margin $1,580,000 $3,150,000 $4,730,000

Actual Results Victor House-Mate Total

Number sold 5,200 35,000 40,200

Contribution margin $1,400,000 $4,130,000 $5,530,000

What is the contribution margin for the flexible budget? (Round intermediary calculations to the nearest dollar.)

A) $1,367,600

B) $4,095,000

C) $4,737,000

D) $5,462,600

Diff: 3

Objective: 6

AACSB: Application of knowledge

39) 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 2020 were as follows:

Static Budget Victor House-Mate Total

Number sold 6,000 24,000 30,000

Contribution margin $1,570,000 $3,130,000 $4,700,000

Actual Results Victor House-Mate Total

Number sold 5,000 35,000 40,000

Contribution margin $1,540,000 $4,170,000 $5,710,000

What is the total static-budget variance in terms of the contribution margin?

A) $1,070,000 favorable

B) $1,010,000 favorable

C) $1,010,000 unfavorable

D) $1,070,000 unfavorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

40) 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 2020 were as follows:

Static Budget Victor House-Mate Total

Number sold 6,200 26,000 32,200

Contribution margin $1,590,000 $3,150,000 $4,740,000

Actual Results Victor House-Mate Total

Number sold 5,400 39,000 44,400

Contribution margin $1,400,000 $4,130,000 $5,530,000

What is the total flexible-budget variance in terms of the contribution margin? (Round intermediary calculations to the nearest dollar.)

A) $571,400 favorable

B) $1,382,400 favorable

C) $571,400 unfavorable

D) $4,719,000 unfavorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

41) 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 2020 were as follows:

Static Budget Victor House-Mate Total

Number sold 6,000 24,000 30,000

Contribution margin $1,560,000 $3,120,000 $4,680,000

Actual Results Victor House-Mate Total

Number sold 5,100 35,000 40,100

Contribution margin $1,400,000 $4,130,000 $5,530,000

What is the total sales-volume variance in terms of the contribution margin?

A) $1,196,000 favorable

B) $1,326,000 favorable

C) $4,550,000 unfavorable

D) $1,196,000 unfavorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

42) 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 2020 were as follows:

Static Budget Victor House-Mate Total

Number sold 6,000 24,000 30,000

Contribution margin $1,560,000 $3,120,000 $4,680,000

Actual Results Victor House-Mate Total

Number sold 5,500 38,000 43,500

Contribution margin $1,400,000 $4,130,000 $5,530,000

What is the total sales-quantity variance in terms of the contribution margin? (Round any intermediary calculations two decimal places.)

A) $2,106,000 unfavorable

B) $702,000 favorable

C) $1,404,000 unfavorable

D) $2,106,000 favorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

43) 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 2020 were as follows:

Static Budget Victor House-Mate Total

Number sold 6,000 24,000 30,000

Contribution margin $1,560,000 $3,120,000 $4,680,000

Actual Results Victor House-Mate Total

Number sold 5,100 35,000 40,100

Contribution margin $1,400,000 $4,130,000 $5,530,000

What is the total sales-mix variance in terms of the contribution margin? (Round any intermediary calculations two decimal places.)

A) $729,820 unfavorable

B) $456,820 unfavorable

C) $273,000 favorable

D) $1,002,820 favorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

44) The static-budget variance is the difference between an actual result and the corresponding budgeted amount in the static budget.

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.

Diff: 2

Objective: 6

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.

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.

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.

Diff: 2

Objective: 6

AACSB: Analytical thinking

49) A favorable sales-mix variance arises when the actual sales-mix percentage exceeds the budgeted sales-mix percentage.

Diff: 3

Objective: 6

AACSB: Analytical thinking

50) A composite unit is a hypothetical unit with weights based on the mix of individual units.

Diff: 1

Objective: 6

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.

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.

Diff: 2

Objective: 6

AACSB: Analytical thinking

53) The sales-quantity variance occurs in a multi-product company from a change in the sales mix.

Diff: 3

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.

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.

Diff: 2

Objective: 6

AACSB: Analytical thinking

56) Blue States 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:

Actual Budget

Colombian Blue Mountain Colombian Blue Mountain

Sales in pounds 15,000 lbs. 17,000 lbs. 13,500 lbs. 18,000 lbs

Price per pound $13.00 $16.00 $13.00 $16.00

Variable cost per pound 5.00 9.00 6.50 9.00

Contribution margin $8.00 $7.00 $6.50 $7.00

Budgeted and actual fixed corporate-sustaining costs are $60,000 and $72,000, respectively.

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.

a. Actual contribution margin: 15,000 × $8.00 = $ 120,000

17,000 × $7.00 = 119,000

$239,000

b. Static-budget contribution margin: 13,500 × $6.50 = $ 87,750

18,000 × $7.00 = 126,000

$213,750

c. Flexible-budget contribution margin: 15,000 × $6.50 = $ 97,500

17,000 × $7.00 = 119,000

$216,500

d. Static-budget variance = $213,750 - $239,000 = $25,250 favorable

Flexible-budget variance = $216,500 - $239,000 = $22,500 favorable

Sales-volume variance = $213,750 - $216,500 = $2,750 favorable

Diff: 3

Objective: 6

AACSB: Application of knowledge

57) Superior Electronics manufactures TVs and DVDRs. During April, the following activities occurred:

TVs DVDRs

Budgeted units sold 19,404 72,996

Budgeted contribution margin per unit $40 $75

Actual units sold 22,000 80,000

Actual contribution margin per unit $45 $76

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.

a. TVs

[(110,000 × 0.20) × $40] = $880,000

[(110,000 × 0.21) × $40] = 924,000

$ 44,000 unfavorable

DVDRs

[(110,000 × 0.80) × $75 = $6,600,000

(110,000 × 0.79) × $75] = 6,517,500

$ 82,500 favorable

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

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 2020 are as follows:

Static Budget ZENITH House-Helper Total

Number sold 20,000 80,000 100,000

Contribution margin $4,800,000 $15,600,000 $20,400,000

Actual Results ZENITH House-Helper Total

Number sold 21,500 60,000 81,500

Contribution margin $6,665,000 $13,200,000 $19,865,000

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.

Budgeted contribution margin per unit:

ZENITH = $4,600,000/20,000 = $240 House-Helper = $15,600,000/80,000 = $195

a. Flexible-budget contribution margin: 21,500 × $240 = $ 5,160,000

60,000 × $195 = 11,700,000

$16,860,000

b. Static-budget variance = $20,400,000 - $19,865,000= $535,000 favorable

Flexible-budget variance = $16,860,000 - $19,865,000= $3,005,000 favorable

Sales-volume variance = $20,400,000 - $16,860,000 =$3,540,000 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 2020 are as follows:

Static Budget Zenith House-Helper Total

Number sold 20,000 80,000 100,000

Contribution margin $4,600,000 $15,200,000 $19,800,000

Actual Results Zenith House-Helper Total

Number sold 21,500 64,500 86,000

Contribution margin $6,665,000 $14,190,000 $20,855,000

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)

Zenith = 20,000/100,000 = 20% House-Helper = 80,000/100,000 = 80%

Actual sales-mix percentage:

Zenith = 21,500/86,000 = 30% House-Helper = 64,500/86,000 = 70%

Budgeted contribution margin per unit:

Zenith = $4,600,000/20,000 = $230 House-Helper = $15,200,000/80,000 = $190

Diff: 3

Objective: 6

AACSB: Application of knowledge

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 2020 are:

Static Budget Residential Office Total

Number of chairs sold 260,000 140,000 400,000

Contribution margin $26,000,000 $11,200,000 $37,200,000

Actual Results Residential Office Total

Number of chairs sold 248,400 165,600 414,000

Contribution margin $22,356,000 $13,248,000 $35,604,000

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.

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%

Diff: 3

Objective: 6

AACSB: Application of knowledge

61) What are the two components of the sales-volume variance?

Diff: 2

Objective: 6

AACSB: Analytical thinking

62) What are the two components of the sales-quantity variance?

Diff: 3

Objective: 6

AACSB: Analytical thinking

63) Explain what is meant by the sales volume variance and describe the relationship between the sales-volume variance and (1) the sales mix variance and (2) the sales quantity variance and (3) Market share variance and the market size variance.

Diff: 3

Objective: 6

AACSB: Analytical thinking