7.

a.

HAYDEN COMPANY
$131,125 [$640,000 - (32,000 x $15.375) - $16,875 volume variance]
Volume variance $16,875 = $135,000/40,000 x 35,000 - $135,000

b.

$130,000

[$640,000 - (32,000 x $15) - $30,000 volume variance]

Volume variance $30,000 = $135,000/30,000 x 35,000 - $135,000

c.

$134,500

[$640,000 - (32,000 x $16.50) + $22,500 volume variance]

Volume variance $22,500 = $135,000/30,000 x 35,000 - $135,000

d.

$121,000

[$640,000 - (32,000 x $12) - $135,000]

6. SUTTON HOTDOG
Answer:
a.
Breakeven units = ($90,000 + $30,000) / ($1.35 $1.05) = 400,000
b.

Breakeven units (N) = [($90,000 + $30,000) + ($0.225 (N 400,000))]

$1.35 $1.05
N = ($120,000 + $0.225N - $90,000) / $0.30
$0.30N = $30,000 + $0.225N
$0.075N = $30,000
N = 400,000 units

c.

Breakeven units (N) = [($90,000 + $30,000) + ($0.18 (N 500,000))]

$1.35 $1.05
N = ($120,000 + $0.18N - $90,000) / $0.30
$0.3N = $30,000 + $0.18N
$0.12N = $30,000
N = 250,000 units

5. WALLACE WRENCH ANSWER

Answer:
a.
b.
c.
d.

Theoretical overhead rate = $336,600 / (5,000 x 20) = $3.366

Practical overhead rate = $336,600 / (4,500 x 20) = $3.74
Normal overhead rate = $336,600 / (4,250 x 20) = $3.96
Master-budget overhead rate = $336,600 / (4,400 x 20) = $3.825

4. CALVIN ANSWER
Answer:
a.
$9 + $5 + $4 = $18
b.
Equal to direct materials = $9
c.
150,000 x ($34 $9) = $3,750,000

1. BOBBY SMITH ANSWER

Answer:
a.

Absorption-costing income statements:

Sales
Cost of goods sold:
Beginning inventory
Variable
Fixed
Subtotal
Ending inventory
Total COGS

20X5
$4,000,000

20X6
$4,500,000

0
2,000,000
2,000,000
4,000,000
800,000
3,200,000

800,000
1,400,000
2,000,000
4,200,000
0
4,200,000

Gross margin
Selling and administrative
Operating income
b.

300,000
100,000
$ 200,000

20X5
$4,000,000
1,600,000
2,400,000

20X6
$4,500,000
1,800,000
2,700,000

2,000,000
100,000
$ 300,000

2,000,000
100,000
$ 600,000

Variable-costing income statements:

Sales
Variable expenses
Contribution margin
Fixed expenses:
Manufacturing
Selling and administrative
Operating income

c.

800,000
100,000
$ 700,000

Budgeted fixed manufacturing overhead rate for 20X5 = $2,000,000 / 100,000 = $20
20X5 difference of $400,000 = (100,000 80,000) x $20 = $400,000 (favors absorption method)
20X6 difference of $400,000 = (70,000 90,000) x $20 = $400,000 (favors variable method)