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1.

North Shore Clothing Company provided the following manufacturing costs for the month of June.

 Direct labor cost \$138,000 Direct materials cost 85,000 Equipment depreciation (straight-line) 24,000 Factory insurance 19,000 Factory manager's salary 11,000 Janitor's salary 3,000 19,200 Packaging costs Property taxes 14,000

From the above information, calculate North Shore's total variable costs.

 A) \$313,200 B) \$71,000 C) \$242,200 D) \$223,000 Answer: C Explanation: C) Direct materials cost \$85,000 Direct labor cost 138,000 Packaging costs 19,200 Total variable costs \$242,200
• 2. A cellphone service provider charges \$5.00 per month and \$0.20 per minute per call. If a customer's current bill is \$55, how many minutes did the customer use? (Round any intermediate calculations and your final answer to the nearest whole minute.)

 A) 275 minutes B) 300 minutes C) 250 minutes D) 225 minutes Answer: C Explanation: C) Current bill 55 Less monthly charges (5.00) Call charges (A) 50.00 Charge per minute per call (B) 0.20 Number of minutes used (A) / (B) 250
• 3. Jose Foster, a manager of Prettiest Pooch, Inc., was reviewing the water bills of a dog daycare and spa. He determined that its highest and lowest bills of \$3,800 and \$2,000 were incurred in the months of May and November, respectively. If 600 dogs were washed in May and 200 dogs were washed in November, what was the fixed cost associated with the company's water bill? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)

• A) \$2,000

• B) \$3,800

• C) \$1,100

• D) \$1,800

Answer: C Explanation: C) Variable cost per unit = Change in total cost / Change in volume of activity Variable cost per unit = (\$3,800 - \$2,000) / (600 dogs - 200 dogs) = \$1,800 / 400 dogs Variable cost per unit = \$4.50 per dog

 Number of dogs washed in May 600 Variable costs incurred in May (\$4.50 per dog × 600 dogs) \$2,700.00 Fixed costs incurred in May (\$3,800 - \$2,700.00) \$1,100
• 4. Left Hand, Inc. has fixed costs of \$400,000. Total costs, both fixed and variable, are \$550,000 when 40,000 units are produced. Calculate the total costs if the volume increases to 64,000 units. (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

 A) \$950,000 B) \$150,000 C) \$640,000 D) \$550,000 Answer: C Explanation: C) Total costs \$550,000 Less: fixed costs (400,000) Variable costs (A) \$150,000 Number of units (B) 40,000 Variable cost per unit (A) / (B) \$3.75 Number of units after increase in production 64,000 Variable costs of production 240,000 Fixed costs 400,000 Total costs after increase in production \$640,000
• 5. Anthony Chemicals, Inc. has fixed costs of \$34,000 per month. The highest production volume during the year was in January when 120,000 units were produced, 72,000 units were sold, and total costs of \$610,000 were incurred. In June, the company produced only 54,000 units. What was the total cost incurred in June? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)

 A) \$259,200 B) \$293,200 C) \$610,000 D) \$644,000 Answer: B Explanation: B) Total costs \$610,000 Less: fixed costs (34,000) Variable costs (A) \$576,000 Number of units (B) 120,000
 Variable cost per unit (A) / (B) \$4.80 Number of units produced in June 54,000 Variable costs incurred in June \$259,200=4.8*54，000 Fixed costs 34,000 Total cost in June \$293,200
• 6. The highest value of total cost was \$800,000 in June for Mantilla Beverages, Inc. Its lowest value of total cost was \$510,000 in December. The company makes a single product. The production volume in June and December were 13,000 and 8,000 units, respectively. What is the fixed cost per month? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

• A) \$510,000

• B) \$290,000

• C) \$46,000

• D) \$8,000

Answer: C Explanation: C) Variable cost per unit = Change in total cost / Change in volume of activity Variable cost per unit = (Highest cost - Lowest cost) / (Highest volume - Lowest volume)

 Change in total cost (A) \$290,000 Change in volume of activity (B) 5,000 Variable cost per unit (A / B) \$58.00 Total costs for June Total variable costs for June (58.00 × 13,000) 754,000 Fixed costs for June (\$800,000 - 754,000) \$46,000
• 7. The phone bill for a company consists of both fixed and variable costs. Refer to the four-month data below and apply the high-low method to answer the question. (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

 Minutes Total Bill January 460 \$3,000 February 200 \$2,675 March 180 \$2,630 April 320 \$2,840

What is the fixed portion of the total cost?

• A) \$607

• B) \$370

• C) \$2,393

• D) \$2,630

Answer: C Explanation: C) Variable cost per unit = Change in total cost / Change in volume of activity Variable cost per unit = (Highest cost - Lowest cost) / (Highest volume - Lowest volume)

 Change in total cost (\$3,000 - \$2,630) \$370 Change in minutes (460 - 180) 280 Variable cost per minute (\$370 / 280) \$1.32

Variable cost for January = 460 minutes × \$1.32 per minute = \$607 Total fixed costs = Total mixed cost - Total variable cost Total fixed costs = \$3,000 - \$607 = \$2,393

• 8. Gainesville Company has provided the following information:

 Sales price per unit \$56 12 Variable cost per unit Fixed costs per month \$12,000

Calculate the contribution margin ratio. (Round your answer to two decimal places.)

• A) 21.43%

• B) 82.35%

• C) 64.71%

• D) 78.57%

Answer: D Explanation: D) Contribution margin ratio = Contribution margin / Net sales revenue

 Sales price \$56 Less: variable cost (12) Contribution margin \$44

Contribution margin ratio = (\$44 / \$56) × 100 = 78.57%

• 9. The Perfect Fit Company sells hand sewn shirts at \$58.00 per shirt. It incurs monthly fixed costs of \$8,000. The contribution margin ratio is calculated to be 30%. What is the variable cost per shirt? (Round any intermediate calculations and your final answer to two decimal places.)

 A) \$40.60 per shirt B) \$75.40 per shirt C) \$58.00 per shirt D) \$17.40 per shirt Answer: A Explanation: A) Contribution margin ratio 30% Sales price per shirt \$58.00 Contribution margin = \$58.00 × 30% 17.40 Variable cost per shirt \$40.60

Spanish guitars. The guitars sell for \$900, and the fixed monthly operating costs are as follows:

 Rent and utilities \$800 2,000 Wages and benefits to luthier Other expenses 474 Hisham's accountant told him about contribution margin ratios, and Hisham understood clearly that for every dollar of sales, \$0.65 went to cover his fixed costs, and anything above that point was profit. Hisham wishes to earn \$4,000 of operating profit each month. Calculate the number of guitars Hisham will need to sell to achieve the target profit. (Round your answer up to the nearest whole guitar.) A) 3 guitars B) 12 guitars C) 4 guitars D) 13 guitars Answer: D Explanation: D) Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit Contribution margin per unit = \$900 × 0.65 = \$585 Total fixed costs = \$800 + \$2,000 + \$474 = \$3,274 Target profit = \$4,000 Required sales in units = (\$3,274 + \$4,000) / \$585 = 13 guitars 11. Ethan was a professional classical guitar player until a motorcycle accident left him disabled. After long months of therapy, he hired an experienced luthier and started a small shop to make and sell Spanish guitars. The guitars sell for \$600, and the fixed monthly operating costs are as follows: Rent and utilities \$600 2,200 Wages and benefits to luthier Other expenses 470

Ethan's accountant told him about contribution margin ratios, and Ethan understood clearly that for every dollar of sales, \$0.60 went to cover his fixed costs, and anything above that point was profit. Ethan wishes to earn \$5,000 of operating profit each month. Calculate the amount of sales revenue required to achieve the target profit. (Round your answer to the nearest dollar.)

• A) \$5,450

• B) \$8,175

• C) \$13,784

• D) \$20,675

Answer: C Explanation: C) Required sales in dollars = (Fixed costs + Target profit) / Contribution margin ratio Contribution margin ratio = 60% Total fixed costs = \$600 + \$2,200 + \$470 = \$3,270 Target profit = \$5,000 Required sales in dollars = (\$3,270 + \$5,000) / 60% = \$13,784

 Sales price per unit \$45 11 Variable cost per unit Fixed costs per month \$12,700

What are the required sales in units for Young to break even? (Round your answer up to the nearest whole unit.)

• A) 227 units

• B) 1,155 units

• C) 283 units

• D) 374 units

Answer: D Explanation: D) Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit

Unit contribution margin = Net sales revenue per unit - Variable costs per unit

 Sales price \$45 Less: variable cost (11) Contribution margin \$34

Required sales in units = (\$12,700 + \$0) / \$34 = 374 units

• 13. Brad was a professional classical guitar player until a motorcycle accident at left him disabled. After long months of therapy, he hired an experienced luthier and started a small shop to make and sell Spanish guitars. The guitars sell for \$700 each, and the fixed monthly operating costs are as follows:

 Rent and utilities \$810 2,520 Wages and benefits to luthier Other expenses 480

Brad's accountant told him about contribution margin ratios, and Brad understood clearly that for every dollar of sales, \$0.60 went to cover his fixed costs, and anything above that point was profit.

Brad is planning to increase the sales price to \$820. What impact will the increase in sales price have on the breakeven point in units? (Round your answer up to the nearest whole guitar.)

• A) It will stay the same.

• B) It will go down from 12 to 8 units.

• C) It will go up from 8 to 12 units.

• D) It will go down from 10 to 8 units.

Answer: D Explanation: D) Contribution margin per unit = \$700 × 0.60 = \$420 Total fixed costs = \$810 + \$2,520 + \$480 = \$3,810 Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit Required sales in units = (\$3,810 + 0) / \$420 = 10 units Revised contribution margin = \$420 + (\$820 - \$700) = \$420 + \$120 = \$540 Required sales in units (Revised) = (\$3,810 + 0) / \$540 = 8 units

 Units produced 11,000 units Sales price \$400 per unit Direct materials \$20 per unit Direct labor \$35 per unit Variable manufacturing overhead \$70 per unit Fixed manufacturing overhead \$470,000 per year \$90 per unit Variable selling and administration costs Fixed selling and administration costs \$240,000 per year

What is the unit product cost using variable costing?

 A) \$55 B) \$105 C) \$125 D) \$168 Answer: C Explanation: C) Direct materials \$20 Direct labor 35 Variable manufacturing overhead 70 Total unit product cost \$125
• 15. Indiana Hot Tubs, Inc. reports the following information for August:

 Sales Revenue \$650,000 Variable Costs 270,000 Fixed Costs 73,000 Calculate the operating income for August using variable costing. A) \$380,000 B) \$577,000 C) \$307,000 D) \$650,000 Answer: C Explanation: C) Sales Revenue \$650,000 Variable Costs - 270,000 Contribution Margin 380,000 Fixed Costs - 73,000 Operating Income \$307,000

16.

Medbam, Inc. has collected the following data. (There are no beginning inventories.):

What is the operating income using variable costing if 500 units are sold?

• A) \$14,900

• B) \$43,000

• C) \$48,300

• D) \$11,100

 Answer: A Explanation: A) Sales Revenue \$60,000 - Variable Costs* 17,000 Contribution Margin 43,000 - Fixed Costs** 28,100 Operating Income \$14,900 Explanation:

* Variable costs = [(\$10 + \$10 + \$7 + \$7) × 500 units] = \$17,000 ** Fixed costs = \$16,400 + \$11,700 = 28,100

• 18. McFadden, Inc. has collected the following data. (There are no beginning inventories.)

 Units produced 700 units Sales price \$150 per unit Direct materials \$30 per unit Direct labor \$10 per unit Variable manufacturing overhead \$10 per unit Fixed manufacturing overhead \$17,300 per year \$6 per unit Variable selling and administrative costs Fixed selling and administrative costs \$17,200 per year What is the ending balance in Finished Goods Inventory using variable costing if 600 units are sold? A) \$4,000 B) \$5,000 C) \$2,000 D) \$3,000 Answer: B Explanation: B) Ending Finished Goods Inventory = Unsold units × Total unit product cost* = (700 units produced - 600 units sold) × \$50 = \$5,000 * Total unit product cost Direct materials \$30 Direct labor 10 Variable manufacturing overhead 10 Total unit product cost \$50 19. Heung, Inc. reports the following information for the year ended December 31: Units sold 590 units Sales price \$170 per unit Direct materials \$28 per unit Direct labor \$12 per unit Variable manufacturing overhead \$18 per unit
 Fixed manufacturing overhead \$20 per unit \$4 per unit Variable selling and administrative costs Fixed selling and administrative costs \$12,200 per year

The operating income calculated using variable costing and absorption costing amounted to \$9,800 and \$11,000, respectively. There were no beginning inventories. Determine the total fixed manufacturing overhead that will be expensed under variable costing for the year 2016.

• A) \$13,000

• B) \$11,800

• C) \$28,320

• D) \$34,220

Answer: A Explanation: A) Number of units in the ending Fixed Goods Inventory = (Profit using absorption costing

- Profit using variable costing) / Fixed manufacturing overhead per unit = (\$11,000 - \$9,800) / \$20 per unit = 60 units

Number of units produced = Units sold + Ending Inventory - Beginning Inventory Number of units produced = 590 units + 60 units - 0 = 650 units Under variable costing, total fixed manufacturing overhead incurred during the period are expensed, irrespective of the period in which the units are sold. Therefore, total fixed manufacturing overhead expensed under variable costing = 650 units × \$20 per unit = \$13,000

• 20. E-trax, Inc. has provided the following financial information for the year:

 Finished Goods Inventory: Beginning balance, in units 610 2,800 Units produced Units sold 2,900 510 Ending balance, in units Production costs: Variable manufacturing costs per unit \$50 Total fixed manufacturing costs \$42,000

What is the unit product cost for the year using absorption costing?

 A) \$65 B) \$82 C) \$119 D) \$64 Answer: A Explanation: A) Variable manufacturing overhead \$50 Fixed manufacturing overhead (\$42,000 / 2,800 units) 15 Total unit product cost \$65
• 21. The budget process is a loop that consists of ________.

• A) planning, acting, and controlling

• B) developing strategies, planning, acting, and controlling

• C) developing strategies, planning, and acting

• D) developing strategies, acting, and controlling

• 22. Caplico Company has prepared the following sales budget:

 Month Budgeted Sales March \$400,000 April 207,000 May 241,000 June 248,000

Cost of goods sold is budgeted at 40% of sales, and the inventory at the end of February was \$34,000. Desired inventory levels at the end of each month are 10% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

• A) \$24,800

• B) \$9,640

• C) \$96,400

• D) \$9,920

Answer: D Explanation: D) Calculation of beginning inventory on June 1:

• 23. Norton Manufacturing expects to produce 2,900 units in January and 3,600 units in February. Norton budgets \$20 per unit for direct materials. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is \$38,650. Norton desires the ending balance in Raw Materials Inventory to be 10% of the next month's direct materials needed for production. Desired ending balance for February is \$51,100. What is the cost of budgeted purchases of direct materials needed for January?

 A) \$58,000 B) \$65,200 C) \$26,550 D) \$25,150 Answer: C Explanation: C) Budgeted units to be produced in January 2,900 × Direct materials cost per unit \$20
 Direct materials needed for production \$58,000 +Desired direct materials in ending inventory + 7,200* = Total direct materials needed \$65,200 -Direct materials in beginning inventory - 38,650 =Budgeted purchases of direct materials \$26,550

* Desired direct materials in ending inventory = 3,600 × 20 × 10% = 7,200

• 24. Kapital, Inc. has prepared the operating budget for the first quarter of the year. The company forecast sales of \$45,000 in January, \$55,000 in February, and \$65,000 in March. Variable and fixed selling and administrative expenses are as follows:

Variable Expenses: Power cost (20% of sales) Miscellaneous expenses: (10% of sales) Fixed Expenses: Salary expense: \$6,000 per month Salaries expense: \$5,000 per month Depreciation expense: \$1,400 per month Power cost/fixed portion: \$600 per month Miscellaneous expenses/fixed portion: \$1,200 per month

Calculate total selling and administrative expenses for the month of January.

• A) \$27,700

• B) \$33,700

• C) \$13,500

• D) \$30,700

Answer: A Explanation: A) Calculation of total selling and administrative expenses for the month of January:

• 25. Delleate, Inc. has prepared the following direct materials purchases budget:

 Budgeted DM Month Purchases June \$67,000 July 77,000 August 76,300 September 78,000
 October 70,200

All purchases are paid for as follows: 40% in the month of purchase, 50% in the following month, and 10% two months after purchase. Calculate total cash payments made in October for purchases.

• A) \$67,080

• B) \$46,630

• C) \$35,710

• D) \$74,710

Answer: D Explanation: D) Payments in October:

 For Oct. purchases (40% × \$70,200) \$28,080 For Sept. purchases (50% × \$78,000) 39,000 For Aug. purchases (10% × \$76,300) 7,630 Total cash paid \$74,710
• 26. A manufacturing company's budgeted income statement includes the following data:

 Data extracted from budgeted income statement Mar Apr May Jun Sales revenue \$130,000 \$80,000 \$130,000 \$120,000 Commission expense (15% of sales) 19,500 12,000 19,500 18,000 33,000 33,000 33,000 33,000 Salaries expense Miscellaneous expense—5% of sales 6,500 4,000 6,500 6,000 Rent expense 3,600 3,600 3,600 3,600 Utilities expense 2,300 2,300 2,300 2,300 2,600 2,600 2,600 2,600 Insurance expense Depreciation expense 4,200 4,200 4,200 4,200

The budget assumes that 60% of commission expenses are paid in the month they are incurred and the remaining 40% are paid one month later. In addition, 50% of salaries expenses are paid in the same month, and the remaining 50% are paid one month later. Miscellaneous expenses, rent expense, and

utilities expenses are assumed to be paid in the same month in which they are incurred. Insurance has been paid in advance for the year on January 1. Calculate total budgeted cash payments for selling and administrative expenses for the month of April.

• A) \$52,000

• B) \$60,500

• C) \$57,900

• D) \$64,700

Answer: C Explanation: C) Payment for selling and administrative expenses for the month of April:

• 27. Diemans Corp. has provided a part of its budget for the second quarter:

 Apr May Jun Cash collections \$40,000 \$40,000 \$52,000 Cash payments: Purchases of direct materials 4,500 5,000 7,000 7,200 7,000 4,500 Operating expenses Capital expenditures 5,000 0 10,000

The cash balance on April 1 is \$14,000. Assume that there will be no financing transactions or costs during the quarter. Calculate the projected cash balance at the end of April.

 A) \$95,800 B) \$54,000 C) \$37,300 D) \$65,300 Answer: C Explanation: C)
 Apr May Jun Beginning cash balance \$14,000 \$37,300 \$65,300 40,000 40,000 52,000 Plus: Receipts from customers Total cash available \$54,000 \$77,300 \$117,300 Less: Payment for purchases of direct materials 4,500 5,000 7,000 Operating expenses 7,200 7,000 4,500 5,000 0 10,000 Capital expenditures Ending cash balance \$37,300 \$65,300 \$95,800
• 28. Louise, Inc. has a cash balance of \$20,000 on April 1. The company is now preparing the cash budget for the second quarter. Budgeted cash collections and payments are as follows:

 Apr May Jun Cash collections \$22,000 \$22,000 \$24,000
 Cash payments: Purchases of direct materials 4,600 5,000 6,800 Operating expenses 6,000 4,600 6,000

There are no budgeted capital expenditures or financing transactions during the quarter. Based on the above data, calculate the projected cash balance at the end of May.

 A) \$22,000 B) \$53,400 C) \$48,400 D) \$43,800 Answer: D Explanation: D)
 Apr May Jun Beginning cash balance \$20,000 \$31,400 \$43,800 22,000 22,000 24,000 Plus: Cash receipts Cash available \$42,000 \$53,400 \$67,800 Less: Cash payments Purchases of direct materials 4,600 5,000 6,800 6,000 4,600 6,000 Operating expenses Ending cash balance \$31,400 \$43,800 \$55,000
• 29. Acme, Inc. has prepared its third quarter budget and provided the following data:

 Jul Aug Sep Cash collections \$50,000 \$39,600 \$46,100 Cash payments: Purchases of direct materials 30,000 21,700 17,600 12,300 8,000 11,600 Operating expenses Capital expenditures 13,700 24,300 0

The cash balance on June 30 is projected to be \$4,100. The company has to maintain a minimum cash balance of \$5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of \$5,000 and has to pay interest every month at an annual rate of 5%. All financing transactions are assumed to take place at the end of the month. The loan balance should be repaid in increments of \$5,000 whenever there is surplus cash. How much will the company have to borrow at the end of July?

 A) \$0 B) \$5,000 C) \$15,000 D) \$10,000 Answer: D Explanation: D)
• 30. Stockett, Inc. has prepared its third quarter budget and provided the following data:

 Jul Aug Sep Cash collections \$50,000 \$39,700 \$47,600 Cash payments: Purchases of direct materials 30,000 22,000 18,000 12,300 8,700 11,700 Operating expenses Capital expenditures 13,000 24,400 0

The cash balance on June 30 is projected to be \$4,500. The company has to maintain a minimum cash balance of \$5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of \$5,000 and has to pay interest every month at an annual rate of 4%. All financing transactions are assumed to take place at the end of the month. The loan balance should be repaid in increments of \$5,000 whenever there is surplus cash. How much will the company have to borrow at the end of August?

• A) \$15,000

• B) \$5,000

• C) \$10,000

• D) \$20,000

Explanation: A)

• 31. Kevin Couriers Company prepared the following static budget for the year:

 Static Budget Units/Volume 5,000 Per Unit Sales Revenue \$7.00 \$35,000 Variable Costs 1.00 5,000 30,000 Contribution Margin Fixed Costs 3,000 Operating Income/(Loss) \$27,000

If a flexible budget is prepared at a volume of 7,800, calculate the amount of operating income. The production level is within the relevant range.

• A) \$43,800

• B) \$27,000

• C) \$7,800

• D) \$3,000

Answer: A Explanation: A) Kevin Couriers Company Flexible Budget For the Year Ended December 31, 20XX

Budgeted

Amounts

Per Unit

 Units 7,800 Sales Revenue \$7.00 \$54,600
 Contribution Margin 46,800 Fixed Costs 3,000 Operating Income \$43,800
• 32. The static budget, at the beginning of the month, for Onyx Décor Company, follows:

Static budget:

Sales volume: 1,000 units; Sales price: \$70.00 per unit Variable costs: \$32.00 per unit; Fixed costs: \$37,900 per month Operating income: \$100

Actual results, at the end of the month, follows:

Actual results:

Sales volume: 970 units; Sales price: \$74.00 per unit Variable costs: \$35.00 per unit; Fixed costs: \$34,400 per month Operating income: \$3,430

Calculate the flexible budget variance for sales revenue.

 A) \$4,470 U B) \$4,470 F C) \$3,880 U D) \$3,880 F Answer: D Explanation: D) Flexible Sales Actual Budget Flexible Volume Static Results Variance Budget Variance Budget Units/Volume 970 0 970 30 U \$1,000 Sales Revenue* \$71,780 \$3,880 F \$67,900 \$2,100 U \$70,000 Variable Costs** 33,950 2,910 U 31,040 \$960 F 32,000 \$37,830 \$970 F \$36,860 \$1,140 U \$38,000 Contribution Margin Fixed Costs 34,400 3,500 F 37,900 \$0 37,900 Operating Income/(Loss) \$3,430 \$4,470 F -\$1,040 \$1,140 U \$100

* Sales price per unit × Units ** Variable cost per unit × Units

The static budget, at the beginning of the month, for Steak Frites Company follows:

Static budget:

Sales volume: 1,100 units; Sales price: \$70.00 per unit Variable costs: \$33.00 per unit; Fixed costs: \$39,800 per month Operating income: \$900

Actual results, at the end of the month, follows:

Actual results:

• 33. Sales volume: 995 units; Sales price: \$74.00 per unit

Variable costs: \$35.00 per unit; Fixed costs: \$35,000 per month

Operating income: \$3,805 Calculate the sales volume variance for revenue.

 A) \$4,800 U B) \$7,350 U C) \$3,885 U D) \$3,980 F Answer: B Explanation: B) Flexible Sales Actual Budget Flexible Volume Static Results Variance Budget Variance Budget Units 995 0 995 105 U \$1,100 Sales Revenue* \$73,630 \$3,980 F \$69,650 \$7,350 U \$77,000 Variable Costs** 34,825 1,990 U 32,835 \$3,465 F 36,300 \$38,805 \$1,990 F \$36,815 \$3,885 U \$40,700 Contribution Margin Fixed Costs 35,000 4,800 F 39,800 \$0 39,800 Operating Income/(Loss) \$3,805 \$6,790 F \$(2,985) \$3,885 U \$900

* Sales price per unit × Units ** Variable cost per unit × Units

• 34. The California Fitness Company completed the flexible budget analysis for the second quarter, which is given below.

 Flexible Sales Actual Budget Flexible Volume Static Results Variance Budget Variance Budget Units 12,860 0 12,860 1,060 F 11,800 Sales Revenue \$62,720 \$1,290 U \$64,010 \$4,010 F \$60,000 Variable Costs 27,620 720 U 26,900 \$1,700 U 25,200 \$35,100 \$2,010 U \$37,110 \$2,310 F \$34,800 Contribution Margin Fixed Costs 34,250 250 U 34,000 \$0 34,000 Operating Income/(loss) \$850 \$2,260 U \$3,110 \$2,310 F \$800

Which of the following statements would be a correct analysis of the flexible budget variance for variable costs?

• A) decrease in sales price per unit

• B) increase in variable cost per unit

• C) increase in sales volume

• D) increase in fixed costs

• 35. A favorable sales volume variance in variable costs suggests a(n) ________.

• A) increase in number of actual units sold when compared to the expected number of units sold

• B) decrease in number of actual units sold when compared to the expected number of units sold

• C) increase in variable cost per unit

• D) decrease in fixed costs

• 36. City Golf Center reported actual operating income for the current year as \$65,000. The flexible budget operating income for actual volume is \$58,000, while the static budget operating income is \$59,000. What is the flexible budget variance for operating income?

• A) \$7,000 favorable

• B) \$7,000 unfavorable

• C) \$1,000 unfavorable

• D) \$1,000 favorable

Answer: A Explanation: A) Flexible budget variance for operating income = Actual operating income - Expected operating income in the flexible

• 37. Allen Boating Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Allen uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:

Direct materials: 1 pound per unit; \$11 per pound Direct labor: 4 hours per unit; \$19 per hour

Allen produced 4,000 units during the quarter. At the end of the quarter, an examination of the direct materials records showed that the company used 7,500 pounds of direct materials and actual total materials costs were \$99,300.

What is the direct materials efficiency variance?

• A) \$44,000 U

• B) \$38,500 U

• C) \$44,000 F

• D) \$38,500 F

Answer: B Explanation: B) Direct materials efficiency variance = (Actual quantity - Standard quantity) × Standard cost Direct materials efficiency variance = (7,500 pounds - 4,000 pounds) × \$11 per pound = \$38,500 Unfavorable

• 38. Austin Brands Company uses standard costs for its manufacturing division. Standards specify 0.1 direct labor hours per unit of product. At the beginning of the year, the static budget for variable overhead costs included the following data:

 Production volume 6,300 units \$15,000 Budgeted variable overhead costs Budgeted direct labor hours 630 hours At the end of the year, actual data were as follows: Production volume 4,200 units Actual variable overhead costs \$15,000 Actual direct labor hours 480 hours

What is the variable overhead cost variance? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

 A) \$15,000 U B) \$15,000 F C) \$3,571 U D) \$4,687 F Answer: C

Explanation: C) Variable overhead cost variance = (Actual cost - Standard cost) × Actual quantity Standard cost per direct labor hour = Budgeted variable overhead costs / Budgeted direct labor hours = \$15,000 / 630 direct labor hours = \$23.81 per direct labor hour

Actual cost per direct labor hour = Actual variable overhead costs / Actual direct labor hours = \$15,000 / 480 direct labor hours = \$31.25 per direct labor hour

Variable overhead cost variance = (\$31.25 - \$23.81) × 480 units = \$3,571 Unfavorable