1.

The following information relates to Paternus Company:

Sales Revenue
$10,000,000
Contribution margin 4,000,000
Operating income
1,000,000
If a manager at Paternus desired to determine the percentage impact on income of a given
percentage change in sales, the manager would multiply the percentage increase/decrease
in sales revenue by:
a. 0.25.
b. 0.40.
c. 2.50.
d. 4.00.
e. 10.00.
2. Which of the following would take place if a company were able to reduce its variable cost per
unit?

a.
b.
c.
d.
e.

Choice A
Choice B
Choice C
Choice D
Choice E

2. The master budget contains the following components, among others: (1) direct-material
budget, (2) budgeted balance sheet, (3) production budget, and (4) cash budget. Which of
these components would be prepared first and which would be prepared last?

a. Choice A
b. Choice B
c. Choice C
d. Choice D
e. Choice E
3. When should variances be investigated?
a. when they fall out of the accepted range or the control limit
b. when the variances are unfavorable
c. when the variances are over $10,000
all variances should be investigated

4. A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is
commonly called a:
A. pro-forma budget.
B. master budget.
C. financial budget.
D. profit plan.
E. capital budget.
5. For external-reporting purposes, generally accepted accounting principles require that net
income be based on:
A. absorption costing.
B. variable costing.
C. direct costing.
D. semivariable costing.
E. activity-based costing.
6. Which of the following would take place if a company experienced an increase in fixed
costs?
A. Net income would increase.
B. The break-even point would increase.
C. The contribution margin would increase.
D. The contribution margin would decrease.
7. Assuming no change in sales volume, an increase in company's per-unit contribution margin
would:
A. increase net income.
B. decrease net income.
C. have no effect on net income.
D. increase fixed costs.
8.

A favorable labor efficiency variance is created when:

A. actual labor hours worked exceed standard hours allowed.
B. actual hours worked are less than standard hours allowed.
C. actual wages paid are less than amounts that should have been paid.
D. actual units produced exceed budgeted production levels.
E. actual units produced exceed standard hours allowed.

9. Robert Company, which applies overhead to production on the basis of machine hours,
reported the following data for the period just ended:
Actual units produced: 12,000
Actual variable overhead incurred: $77,700
Actual machine hours worked: 18,800
Standard variable overhead cost per machine hour: $4.50
If Robert estimates 1.5 hours to manufacture a completed unit, the company's variableoverhead spending variance is:
a. $3,600 favorable.
b. $3,600 unfavorable.
c. $6,900 favorable.
d. $6,900 unfavorable.
e. some other amount not listed above.
10. Trois Elles Corporation recently prepared a manufacturing cost budget for an output of
50,000 units, as follows:

Actual units produced amounted to 60,000. Actual costs incurred were: direct materials,
$110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead, $97,000.
If Trois Elles evaluated performance by the use of a flexible budget, a performance report
would reveal a total variance of:
a. $3,000 favorable.
b. $23,000 favorable.
c. $27,000 unfavorable.
d. $42,000 unfavorable.
e. none of these amounts.

Make sure you show your work on the problems, so you can earn partial credit.
Problem 1 Worth 6 pts.
Combs, Inc., reports the following information for April sales:
Sales
$50,000
Variable costs
10,000
Fixed costs
7,000
Operating income
$33,000

Required: The questions below are independent of each other, so go back to the original information
above when you answer the question. You can use the table below to answer the questions.
1. If sales volume increases 130% in April what is the projected operating income?
2. If sales volume decrease by 20%, what is the projected operating income?

Original
Sales
Variable costs
Fixed costs
Operating income

$50,000
10,000
7,000
$33,000

Sales
increase
130%

Decrease of
20% in sales

Problem 2: The information that follows is the total for the period when the company sold
300,000 units. Worth 12 pts.
Sales

$900,000

Variable costs

600,000

Fixed costs

100,000

Required:
A. Compute the company's per-unit contribution margin.

B. Compute the company's break-even point in units.

C. What is the safety margin in units?
D. How many total units must company sell to produce a target net profit of $50,000?
E. Assume that the company was able to reduce the fixed cost from $100,000 to
$80,000. What selling price per unit could management charge if it desired to maintain
the current break-even point?
F. Refer back to the original information in the problem, since these questions are
independent of "E". What if the company would like to invest in an advertising
campaign of $20,000, how many more units would have to be sold to justify this
advertising campaign? Why?

Problem 3 Worth 10 pts.

Bruster Company sells its products for $60 each. The current production level for the month is
10,000 units, although only 8,000 units were sold in the current month.
Unit manufacturing costs are:
Direct materials
Direct manufacturing labor
Variable manufacturing overhead costs

$10.00
$8.00
$6.00

Total fixed manufacturing overhead costs

Marketing expenses

$50,000 per month

$1.00 per unit, plus $30,000 per month

Required:
A. Assuming the use of variable costing, compute the unit inventoriable cost for the month.
Hint: What is the product cost under variable costing?
B. Determine the fixed manufacturing overhead rate under absorption costing. Hint: I am asking
for the predetermined overhead rate per unit.
C. Compute the unit inventoriable cost by using absorption costing. Hint: What is the product
cost under absorption costing?
D. What is the ending finished goods balance for the month using variable costing? Hint: I am
asking for the ending finished goods balance in dollar terms.
E. What is the ending finished goods balance for the month using Absorption costing? Hint: I
am asking for the ending finished goods balance in dollar terms.

F. What will be the difference in the dollar amount of income between variable costing and
absorption costing for the month? Which one will have the highest income for the month?
Why?
Hint: You do not need to prepare income statements, since you can reconcile the difference in
the change in inventory times the FOH rate.

Problem 4 Budgeted sales for Katie Company for the second quarter of the current year are as
follows: Worth 8 pts.
Budgeted Sales
$150,000
200,000
120,000

April
May
June

The company collects 25 percent in the month of sale, 55 percent in the first month following
the sale, and 20 percent in the second month following the sale.
Budgeted purchases for Katie Company for the second quarter of the current year are as follows:
Budgeted Purchases
$ 70,000
80,000
100,000

April
May
June

The company pays for 65 percent of its purchases in the month of purchase and 35 percent in
the following month.
Required: Complete the partial cash budget below. You need to compute the cash receipts from
credit sales collected in June and the cash disbursement from payment of purchases in June.
Make sure you show your work and how you determined the cash receipts and payments for
June.
Budgeted Sales
April
April
150,000
May
200,000
June
120,000
Total cash receipts from sales received in June

May

Disbursements for AP
April
70,000
May
80,000
June
100,000
Total cash disbursements from payment for Purchases in June

June

Problem 5 The following standard costs were developed for one of the products of ABC
Company: Worth 8 pts.
The following standards have been set:
Direct Labor:
Quantity, .75 hour per unit
Rate, $15 per hour
Direct Material:
Quantity, 2 pounds per unit
Price, $4 per pound
Actual material purchases amounted to 48,000 pounds at $4.50 per pound. Actual
costs incurred in the production of 20,000 units were as follows:
Direct Labor
$400,000 for 20,000 hours
Direct Material
$112,500 for 45,000 pounds
Required:
a. Calculate the labor rate variance and labor efficiency variance; indicate whether
it is favorable or unfavorable.

b. Calculate the materials price variance and material quantity variance; indicate
whether it is favorable or unfavorable. Material price variance is determined at
time of purchase and Material quantity variance is determined at production
time.
c. Explain how management can use this information to control costs.
Problem 6 Worth 6 pts. Alphabet Corporation sells three products: X,Y, and Z. The following
information was taken from a recent budget:
X
Y
Z
Unit sales
6,000
10,000
4,000
Selling price
$7
$7
$7
Variable cost
$4
$5
$6
Total fixed costs are anticipated to be $42,000.
Required:
A. Determine Alphabet's sales mix.
B. Determine the weighted-average contribution margin.
C. Calculate the number of units of X, Y, and Z that must be sold to break even.(Make sure you
have given me the number of units to breakeven for each of the products)