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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*54000

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.):

Units produced

560

units

 

Units sold

560

units

Sales price

$180

per unit

Direct materials

$10

per unit

Direct labor

$35

per unit

Variable manufacturing overhead

$20

per unit

Fixed manufacturing overhead

$20,000

per year

 

$15

per unit

Variable selling and administrative costs Fixed selling and administrative costs

$20,000

per year

What is the operating income using absorption costing? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

  • A) $44,402

  • B) $36,002

  • C) $16,002

  • D) $24,402

Answer: C Explanation: C) Sales Revenue (560 units × $180 per unit)

 

$100,800

Cost of Goods Sold (560 units × $100.71 per unit)*

56,397.60

Gross Profit

$44,402

Selling and Administrative Costs Variable Selling and Administrative Costs (560 units × $15 per unit)

$8,400

Fixed Selling and Administrative Costs

20,000

28,400

Operating Income *Cost of Goods Sold, per unit: 10 + 35 + 20 + (20,000 / 560) = 100.71

$16,002

17.

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

Units produced

600

units

 

Sales price

$120

per unit

Direct materials

$10

per unit

Direct labor

$10

per unit

Variable manufacturing overhead

$7

per unit

Fixed manufacturing overhead

$16,400

per year

 

$7

per unit

Variable selling and administrative costs Fixed selling and administrative costs

$11,700

per year

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

Answer: B

  • 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:

21. The budget process is a loop that consists of ________. A) planning, acting, and controlling
  • 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:

Direct materials needed for production $58,000 +Desired direct materials in ending inventory + 7,200* = Total
  • 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 expense5% 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
  • 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
  • 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

Answer: A

Explanation: A)

31. Kevin Couriers Company prepared the following static budget for the year: Static Budget Units/Volume 5,000
  • 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

Answer: B

  • 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

Answer: B

  • 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

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