CHAPTER 14 COST ALLOCATION, CUSTOMER-PROFITABILITY ANALYSIS, AND SALES-VARIANCE ANALYSIS

TRUE/FALSE 1. Indirect costs are costs that cannot be traced to cost objects in an economically feasible way. Answer: Terms to Learn: 2. True Difficulty: cost allocation 1 Objective: 1

To motivate engineers to design simpler products, costs for production, distribution, and customer service may be included in product-cost estimates. Answer: Terms to Learn: True Difficulty: cost allocation 2 Objective: 1

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!or e"ternal reporting, inventoriable costs under #$$% sometimes include &'( costs. Answer: Terms to Learn: !alse Difficulty: cost allocation 2 Objective: 1

)nder #$$%, inventoriable costs include only the costs of producing and sometimes the design costs of the product. *. To allocate a cost, it must satisfy all four purposes for which costs are allocated. Answer: !alse Difficulty: 2 Objective: 1 Terms to Learn: cost allocation To allocate a cost, it is only necessary to satisfy one of the purposes for which costs are allocated. +. Today, companies are simplifying their cost systems and moving toward lessdetailed and less-comple" cost allocation bases. Answer: !alse Difficulty: Objective: 2 Terms to Learn: cost allocation ,ompanies are moving toward more-detailed and more-comple" cost allocations because today technology can capture these costs in a relatively ine"pensive manner.

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.hen using the cause-and-effect criterion, cost drivers are selected as the cost allocation bases. Answer: Terms to Learn: True Difficulty: cost allocation 1 Objective: 2

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The ability-to-bear criterion is considered superior when the purpose of cost allocation is motivation. Answer: !alse Difficulty: 2 Objective: 2 Terms to Learn: cost allocation The cause-and-effect or benefits-received criteria is considered superior when the purpose of cost allocation is motivation.

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The benefits of implementing a more-comple" cost allocation system are relatively easy to 1uantify for application of the cost-benefit approach. Answer: !alse Difficulty: 2 Objective: 2 Terms to Learn: cost allocation The benefits of implementing a more-comple" cost allocation system are difficult to measure.

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3ach company must decide which corporate cost categories should be included in the indirect costs of the divisions 4 all, only a subset, or none. Answer: Terms to Learn: True Difficulty: cost allocation 2 Objective:

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!ull allocation of corporate costs to divisions is justified when the notion of controllability is applied. Answer: !alse Difficulty: Objective: Terms to Learn: cost allocation The controllability notion is used to justify e"cluding some or all corporate costs from division reports, not to justify including full costs.

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.hen there is a lesser degree of homogeneity, fewer cost pools are re1uired to accurately e"plain the use of company resources. Answer: !alse Difficulty: 2 Objective: Terms to Learn: homogeneous cost pool The greater the degree of homogeneity, the fewer the cost pools re1uired to accurately e"plain the use of company resources.

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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. Answer: Terms to Learn: True Difficulty: homogeneous cost pool 2 Objective:

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!acility-sustaining costs do not have a cause-and-effect relationship with individual products. Answer: Terms to Learn: True Difficulty: homogeneous cost pool 2 Objective:

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$n individual cost item can be simultaneously a direct cost of one cost object and an indirect cost of another cost object. Answer: Terms to Learn: True Difficulty: homogeneous cost pool Objective:

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$ homogenous cost pool has costs that have similar cause-and-effect relationships with the cost-allocation base. Answer: Terms to Learn: True Difficulty: homogeneous cost pool 2 Objective:

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6nce a cost pool has been established, it should not need to be revisited or revised. Answer: !alse Difficulty: 2 Objective: Terms to Learn: homogeneous cost pool 6nce a cost pool has been established, it is often necessary to revisit it or revise it.

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$ll customers are e1ually important to a company and should receive e1ual levels of attention. Answer: !alse Difficulty: Objective: * Terms to Learn: customer-profitability analysis ,ustomers should receive a level of attention from the company that matches their contribution to the company7s profitability.

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The purpose of price discounting is to encourage increases in customer purchases. Answer: Terms to Learn: True Difficulty: price discounting Objective: *

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There are two elements that influence customer profitability 4 revenues and costs. Answer: Terms to Learn: True Difficulty: 2 customer-profitability analysis Objective: *

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,ompanies that only record the invoice price can usually trac8 the magnitude of price discounting. Answer: !alse Difficulty: 2 Terms to Learn: price discounting To trac8 discounting, the discount must be recorded. Objective: *

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$ customer cost hierarchy categori9es costs related to customers into different cost pools on the basis of using only one cost driver. Answer: !alse Difficulty: 2 Objective: * Terms to Learn: homogeneous cost pool, customer cost hierarchy $ customer cost hierarchy categori9es costs related to customers into different cost pools using different drivers.

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$n activity-based costing system may focus on customers rather than products. Answer: Terms to Learn: True Difficulty: 2 customer-profitability analysis Objective: +

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$ customer cost hierarchy may include distribution-channel costs. Answer: Terms to Learn: True Difficulty: 1 customer cost hierarchy Objective: +

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The cost of visiting customers is an e"ample of a customer output unit-level cost. Answer: !alse Difficulty: 2 Objective: + Terms to Learn: customer cost hierarchy The cost of visiting customers is an e"ample of a customer-sustaining cost.

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In general, distribution-channel costs are more easily influenced by customer actions than customer batch-level costs. Answer: !alse Difficulty: Objective: Terms to Learn: customer cost hierarchy In general, customer batch-level costs are more easily influenced by customer actions than distribution-channel costs.

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The static-budget variance is the difference between an actual result and a budgeted amount in the static budget. 20. corporate-sustaining costs should be allocated. 2/. It is possible that the largest customer in terms of revenue is not the most profitable customer. Answer: !alse Difficulty: Objective: Terms to Learn: customer-profitability analysis. Answer: Terms to Learn: True Difficulty: static budget variance 1 Objective: / 1*-+ . because dropping an unprofitable customer may not cause overall income to increase. . If one of four distribution channels is discontinued. since dropping an unprofitable customer will automatically cause overall income to increase.2-. or motivation. Answer: !alse Difficulty: Objective: Terms to Learn: customer cost hierarchy If one of four distribution channels is discontinued. customer cost hierarchy The allocation of corporate-sustaining costs serves no useful purpose in assessing customer profitability. performance evaluation. Answer: !alse Difficulty: 2 Objective: Terms to Learn: customer profitability analysis . To more accurately assess customer profitability. Answer: Terms to Learn: True Difficulty: 2 customer profitability analysis Objective: - 1.anagers who utili9e customer profitability charts should not drop customers that generate a negative customer operating income. decision ma8ing. corporate-sustaining costs such as general administration costs will most li8ely be reduced by 2+:. 5. corporate-sustaining costs such as general administration costs will most li8ely not be affected. It is common to find that a small number of customers generate a high percentage of operating income. Answer: Terms to Learn: True Difficulty: 2 customer-profitability analysis Objective: - 22.anagers who utili9e customer profitability charts should drop customers that generate a negative customer operating income.

Answer: Terms to Learn: True Difficulty: 1 fle"ible budget variance Objective: / . The fle"ible-budget variance is the difference between an actual result and the fle"ible-budget amount based on the level of output actually achieved in the budget period.2. sales-volume variance $dditional insight can be gained by dividing the static-budget variance into the fle"ible-budget variance and the sales-volume variance. $ composite unit is a hypothetical unit with weights based on the mi" of individual units. +. fle"ible budget variance. $ favorable sales-mi" variance arises when the actual sales-mi" percentage is less than the budgeted sales-mi" percentage. The sales-mi" variance can be e"plained in terms of the budgeted contribution margin per composite unit of the sales mi". Answer: Terms to Learn: True Difficulty: 2 sales-mi" variance. *. Answer: !alse Difficulty: Objective: / Terms to Learn: sales-1uantity variance The sales-1uantity variance is unfavorable when budgeted unit sales e"ceed actual unit sales. 1*-- . Answer: Terms to Learn: True Difficulty: composite unit 1 Objective: / -. Answer: !alse Difficulty: 1 Objective: / Terms to Learn: static budget variance. $dditional insight can be gained by dividing the sales-mi" variance into the fle"ible-budget variance and the sales-volume variance. The sales-1uantity variance is favorable when budgeted unit sales e"ceed actual unit sales. Answer: !alse Difficulty: Objective: / Terms to Learn: sales-mi" variance $ favorable sales-mi" variance arises when the actual sales-mi" percentage e"ceeds the budgeted sales-mi" percentage. composite unit Objective: / /.

The fle"ible-budget variance can be further divided into the sales-mi" variance and the sales-1uantity variance. $ favorable mar8et-si9e variance results with a decrease in mar8et si9e. Answer: Terms to Learn: True Difficulty: mar8et share variance 2 Objective: 0 1*-/ . Answer: !alse Difficulty: Objective: Terms to Learn: mar8et-si9e variance $ favorable mar8et-si9e variance results with an increase in mar8et si9e. and contribution margin in the fle"ible budget. The sales mi" variance is the difference between budgeted contribution margin for the actual sales mi" and the budgeted contribution margin for the budgeted sales mi". 0 *2. The mar8et-share variance is caused solely by the actual mar8et share being different than the budgeted mar8et share. The mar8et share variance is the difference in budgeted contribution margin for actual mar8et si9e in units caused solely by the actual mar8et share being different from the budgeted mar8et share. The sales 1uantity variance is the difference between budgeted contribution margin based on actual units sold of all products at the budgeted mi". sales-1uantity variance The sales-volume variance can be further divided into the sales-mi" variance and the sales-1uantity variance. Answer: Terms to Learn: True Difficulty: mar8et-share variance Objective: 0 *1. Answer: Terms to Learn: True Difficulty: sales mi" variance 2 Objective: / 2. * .0. Answer: !alse Difficulty: 2 Objective: / Terms to Learn: sales 1uantity variance The sales 1uantity variance is the difference between budgeted contribution margin based on actual units sold of all products at the budgeted mi". *5. sales-mi" variance. Answer: !alse Difficulty: 1 Objective: 0 Terms to Learn: sales-volume variance. and contribution margin in the static budget.

$ difficulty with the mar8et share and mar8et si9e variances is that accurate measures of mar8et share and mar8et si9e often do not e"ist. The mar8et si9e variance is the difference in budgeted contribution margin at budgeted mar8et share caused solely by actual mar8et si9e in units being different from budgeted mar8et si9e in units. . variable costs Answer: Terms to Learn: c Difficulty: cost allocation 1 Objective: 1 1*-0 . Answer: Terms to Learn: True Difficulty: mar8et si9e variance 2 Objective: 0 *+. indirect costs d. *0. direct materials yield variance MULTIPLE CHOICE *2. fi"ed costs b.osts which are not economically feasible to trace but which are related to a cost object are 8nown as: a. mar8et share variance 0 *-. Answer: Terms to Learn: True Difficulty: 2 Objective: 2 direct materials mi" variance. The direct materials mi" variance is the sum of the direct materials mi" variances for each input. $ favorable direct materials yield variance results when less direct materials are used than planned. Answer: Terms to Learn: True Difficulty: 2 Objective: mar8et si9e variance. Answer: !alse Difficulty: 2 Objective: 2 Terms to Learn: direct materials mi" variance $ favorable direct materials mi" variance results when cheaper direct materials are substituted for more e"pensive direct materials. $n unfavorable direct materials mi" variance results when cheaper direct materials are substituted for more e"pensive direct materials. direct costs c. Answer: Terms to Learn: True Difficulty: 1 direct materials mi" variance Objective: 2 */.**.

specifically e"clude mar8eting costs c. $ny item for which a separate measurement of cost is desired is 8nown as: a. to calculate costs of a government contract d.3%T to: a. measure income and assets for reporting to e"ternal parties Answer: Terms to Learn: c Difficulty: cost allocation 2 Objective: 1 + . whether to add a new product line b. a direct cost d. Indirect costs: a. determine a selling price the mar8et will bear d. a cost object c. to report to e"ternal parties when using generally accepted accounting principles c. provide information for economic decisions b. cost allocation b. to provide information for economic decisions b. $ll of these answers are correct. often comprise a large percentage of overall costs assigned to a cost object b. $ll of the following illustrate purposes for allocating costs to cost objects 3<. whether to ma8e or buy a component part from another manufacturer d. Answer: Terms to Learn: a Difficulty: cost allocation Objective: 1 1*-2 . are treated as period costs and not as product costs Answer: Terms to Learn: a Difficulty: indirect costs Objective: 1 +2. Answer: Terms to Learn: d Difficulty: cost allocation Objective: 1 +*. the selling price of a service c. motivate managers and employees c.+5. &'( costs are used for which purpose of cost allocation= a. $ll of these answers are correct. The costs of all si" value-chain functions should be included when determining: a. an indirect cost Answer: Terms to Learn: b Difficulty: cost object 1 Objective: 1 +1. cannot be used for e"ternal reporting d.

the criterion often cited in government contracts b. superior when the purpose of cost allocation is for economic decisions c. To guide cost allocation decisions. is the primarily used criterion in activity-based costing d. to motivate managers and other employees c. to motivate managers and other employees c. the cause-and-effect criterion: a. to measure income and assets for reporting to e"ternal parties Answer: Terms to Learn: a Difficulty: cost allocation 2 Objective: 1 +/. is the primary criterion used in activity-based costing c.hich purpose of cost allocation is used to encourage sales representatives to push high-margin products or services= a. the fairness or e1uity criterion is: a. to provide information for economic decisions b. may allocate corporate salaries to divisions based on profits Answer: Terms to Learn: b Difficulty: cost allocation Objective: 2 +0. to measure income and assets for reporting to e"ternal parties Answer: Terms to Learn: b Difficulty: cost allocation 2 Objective: 1 +-. is a difficult criterion on which to obtain agreement d. generally uses the cost driver as the cost allocation base b.hich purpose of cost allocation is used to decide on the selling price for a customi9ed product or service= a. the benefits-received criterion: a. to justify costs or compute reimbursement d.++. to justify costs or compute reimbursement d. the primary criterion used in activity-based costing Answer: Terms to Learn: a Difficulty: cost allocation Objective: 2 1*-15 . may use an allocation base of division revenues to allocate advertising costs Answer: Terms to Learn: d Difficulty: cost allocation Objective: 2 +2. used more fre1uently than the other criteria d. To guide cost allocation decisions. To guide cost allocation decisions. results in subsidi9ing products that are not profitable c. . to provide information for economic decisions b. . is used less fre1uently than the other criteria b.

$ challenge to using cost-benefit criteria for allocating costs is that: a. the benefits of ma8ing better-informed pricing decisions are difficult to measure c.. is the criterion often cited in government contracts Answer: Terms to Learn: c Difficulty: cost allocation Objective: 2 -1. the costs of collecting and processing information 8eep spiraling upward Answer: Terms to Learn: b Difficulty: cost allocation Objective: 2 1*-11 . the ability to bear criterion d. cost systems are being simplified and fewer multiple cost-allocation bases are being used d. Answer: Terms to Learn: d Difficulty: cost allocation 2 Objective: 2 -2. allocates costs in proportion to the benefits received c.-5. . the cause-and-effect criterion Answer: Terms to Learn: c Difficulty: cost allocation 2 Objective: 2 . the fairness or e1uity criterion b.hich cost-allocation criterion is appropriate when ma8ing an economic decision= a. results in subsidi9ing products that are not profitable d. the benefits-received criterion c. the fairness or e1uity criterion b.6>T li8ely to subsidi9e poor performers at the e"pense of the best performers= a.hich cost-allocation criterion is . $ll of these answers are correct. the ability to bear criterion c. the cause-and-effect criterion d. . the ability to bear criterion: a. the costs of designing and implementing comple" cost allocations are not readily apparent b. is li8ely to be the most credible to operating personnel b. To guide cost allocation decisions.

6>T li8ely reason for allocating all corporate costs to divisions include that: a. division resources are already used to attain corporate goals d. using a single cost pool b. perceived as causally related to division activities d. Answer: Terms to Learn: d Difficulty: cost allocation 2 Objective: -+.-*. to divisions using one cost pool and then reallocating costs to products using multiple cost pools c. The . divisions receive benefits from all corporate costs c. >ome companies only allocate corporate costs to divisions that are: a. planned and under the control of division managers b. these costs are not controllable by division managers b.orporate overhead costs can be allocated: a. not corporate activities c. a decrease in overall corporate profitability Answer: Terms to Learn: c Difficulty: cost allocation Objective: 1*-12 . division managers ma8e decisions that ultimately control corporate costs b. $ll of these answers are correct. direct costs Answer: Terms to Learn: c Difficulty: cost allocation 2 Objective: -0. an increase in overall corporate profitability b. using numerous individual corporate cost pools d. it is best to use multiple cost objects Answer: Terms to Learn: b Difficulty: cost allocation Objective: --. the hierarchy of costs promotes cost management d. ?ot allocating some corporate costs to divisions and products results in: a. .6>T li8ely reason for ?6T allocating corporate costs to divisions include that: a. these costs are incurred to support division activities. output unit-level costs c. The . the sum of individual product profitability being greater than overall company profitability d. divisions receive no benefits from corporate costs Answer: Terms to Learn: a Difficulty: cost allocation Objective: -/. the sum of individual product profitability being less than overall company profitability c.

those costs: a. are considered an allocated cost pool Answer: Terms to Learn: c Difficulty: homogeneous cost pool 2 Objective: /1. fewer the number of needed cost pools c. the need for more cost drivers d. Answer: Terms to Learn: d Difficulty: homogeneous cost pool 2 Objective: / . more resources being assigned to that cost object c. Answer: Terms to Learn: a Difficulty: homogeneous cost pool 2 Objective: /2. should include the input of management c. greater the number of needed cost pools b. less accurate the costs of a particular cost object d.hen individual activities within a cost pool have a similar relationship with the cost driver. are considered a homogeneous cost pool d. The greater the degree of homogeneity. Aoth a and c are correct. greater the variety of cause-and-effect relationships with the cost driver Answer: Terms to Learn: b Difficulty: homogeneous cost pool 2 Objective: /5. the a. re1uires judgment and should be reevaluated on a regular basis b. need to be reallocated b. be an output unit-level base b. To allocate corporate costs to divisions. @omogeneous cost pools lead to: a. need multiple cost drivers c. more accurate costs of a given cost object b. combine administrative costs and human resource management costs d. the allocation base used should: a. Identifying homogeneous cost pools: a. have the best cause-and-effect relationship with the costs c. $ll of these answers are correct. .-2. should include a cost-benefit analysis d. allocate the full costs Answer: Terms to Learn: b Difficulty: cost allocation Objective: 1*-1 .

i"er (ivision and an 3lectric Bamp (ivision.255. To manage setup costs.5+5.555.555 " D1.orporation has an 3lectric .555.+55.555. D1*.555 Objective: 1*-1* . Aoth a and c are correct. batch-level costs incurred per setup-hour d.555 for e"pansion. . output unit-level costs b.555.555 and the 3lectric Bamp (ivision used D-.555F D1. D*. facility-sustaining costs c. D1. D-.T@&6)#@ /0: The @assan . the 3lectric . number of setup-hours b. product-sustaining costs d. .i"er (ivision used D1*.i"er (ivision= a.555 //.555 " D1.$TI6? $%%BI3> T6 C)3>TI6?> /. Interest costs on the bond totaled D1.255.orporate administrative costs allocated to a division cost pool are .555 b.555 Answer: b Difficulty: 2 Terms to Learn: cost allocation D1*. a corporation might focus on the a.555.555 bond issuance.555. number of units included in each production run c.555 b.555 E D25.hat amount of interest costs should be allocated to the 3lectric Bamp (ivision= a./*. D1.555 Answer: a Difficulty: 2 Terms to Learn: cost allocation D-.555 d.555 for the year.+55.5+5.+55.5+5. Answer: Terms to Learn: d Difficulty: homogeneous cost pool Objective: T@3 !6BB6.555 c.555 d. D*+5.hat amount of interest costs should be allocated to the 3lectric .555. 6f a D25.555 E D25. /-.555 c.555. Objective: . D*. batch-level costs Answer: Terms to Learn: b Difficulty: cost allocation 1 Objective: /+.I?# I?!6&. D*+5.555.555 F D*+5.6>T li8ely to be: a.

. %rice discounts are influenced by: a. Answer: Terms to Learn: d Difficulty: 2 customer-profitability analysis Objective: * 02. output unit-level cost b. To improve customer profitability. companies should: a. Answer: Terms to Learn: d Difficulty: price discounting 2 Objective: * 01. Answer: Terms to Learn: d Difficulty: 2 customer-profitability analysis Objective: * 1*-1+ . be charged higher prices for the same products than less profitable customers d. be treated the same as other customers because all customers are important b. trac8 discounts by customer c. receive a higher level of attention from the company than less profitable customers c. only the final invoice price of a sale b. negotiating s8ills of the sales person d. a desire to sell to a customer in an area with high-growth potential c. trac8 discounts by sales person d. product-sustaining cost d. facility-sustaining cost c. not be offered the volume-based price discounts offered to less profitable customers Answer: Terms to Learn: b Difficulty: customer-profitability analysis Objective: * 05. Aoth b and c are correct. Aoth b and c are correct. companies should trac8: a. $ll of these answers are correct. strictly enforce their volume-based price discounting policy b. The above interest costs would be considered aGnH: a.ustomers ma8ing large contributions to the profitability of the company should: a. batch-level cost Answer: Terms to Learn: c Difficulty: homogeneous cost pool 2 Objective: /2. the volume of the products purchased by each customer c./0. To improve customer profitability. discounts ta8en by each customer d. the volume of product purchased b.

6>T li8ely be classified as a: a. Answer: Terms to Learn: d Difficulty: 2 customer cost hierarchy Objective: + 0*. corporate-sustaining cost Answer: Terms to Learn: d Difficulty: 1 customer cost hierarchy Objective: + 0-. Top management and general administration costs would .6>T li8ely be classified as a: a. types of cost drivers b. customer batch-level cost c.osts incurred to process orders would . customer batch-level cost c. customer-sustaining cost d.osts incurred to handle each unit sold would . customer batch-level cost c. customer output unit-level cost b. customer output unit-level cost b. levels of cause-and-effect relationships d. corporate-sustaining cost Answer: Terms to Learn: b Difficulty: 1 customer cost hierarchy Objective: + 0+. corporate-sustaining cost Answer: Terms to Learn: a Difficulty: 1 customer cost hierarchy Objective: + 1*-1- . . customer-sustaining cost d. . customer-sustaining cost d. customer batch-level cost c.6>T li8ely be classified as a: a.6>T li8ely be classified as a: a. $ customer cost hierarchy categori9es costs related to customers into different cost pools on the basis of different: a. customer output unit-level cost b. The cost of visiting customers would . $ll of these answers are correct. customer output unit-level cost b.0 . corporate-sustaining cost Answer: Terms to Learn: c Difficulty: 1 customer cost hierarchy Objective: + 0/. customer-sustaining cost d. benefits-received relationships c.

trends in the volume of purchases become apparent d. ma8e fewer customer visits c.00. $ll of these answers are correct. improve the efficiency of the ordering process b. should be allocated for decisions regarding reducing customer costs d. %rice discounting Answer: Terms to Learn: c Difficulty: 1 customer cost hierarchy Objective: + 02. IIIIIIIIIIIIIII categori9es 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 Gor benefits-receivedH relationships. distribution-channel costs Answer: Terms to Learn: d Difficulty: 2 customer cost hierarchy Objective: - 25. 21. are common to all individual customers b. customer batch-level costs c. customer-sustaining costs d. Answer: Terms to Learn: a Difficulty: customer cost hierarchy Objective: - 1*-1/ . $ll of these answers are correct.ustomer revenues c.ustomer actions will B3$>T affect: a.ustomer cost hierarchy d. Answer: b Difficulty: Objective: Terms to Learn: customer-profitability analysis . eliminate distribution to retailers and only service wholesalers d. . $n advantage of using a bar chart to visuali9e customer profitability is that: a. To reduce distribution-channel costs. Answer: Terms to Learn: c Difficulty: customer-profitability analysis Objective: - 22. a company could: a. $ll of these answers are correct.ustomer-profitability analysis b. . loss customers stand out c. a. differences in commissions paid to sales persons stand out b. have a clear cause-and-effect relationship with several cost-allocation bases c. customer output unit-level costs b. .orporate-sustaining costs: a. .

evaluate distribution-channel managers c.2 . $ common finding in many studies is that a high percentage of operating income is: a. focusing on the cause-and-effect relationships with the cost-allocation bases d. evaluates the effectiveness of sales personnel Answer: Terms to Learn: b Difficulty: customer-profitability analysis Objective: - 2+. then the sum of the distribution-channel operating incomes is: a. helps define cost reduction possibilities b. customer cost 2/. contributed by a small number of customers b. identifies administrative inefficiencies d. less than company-wide operating income b. determine the selling price that will cover all costs d. indeterminable Answer: Terms to Learn: b Difficulty: Objective: customer-profitability analysis. Answer: Terms to Learn: d Difficulty: customer cost hierarchy Objective: - 2*. evaluating the performance of salespersons with individual customer accounts b. gives the misleading impression of potential cost savings c. If deciding whether to eliminate a distribution channel. The allocation of corporate-sustaining costs is useful for: a. ?one of these answers is correct. the result of cooperative efforts by many low-volume customers Answer: Terms to Learn: a Difficulty: 2 customer-profitability analysis Objective: - 1*-10 . customer-profitability analysis. e1ual to company-wide operating income c.orporate-sustaining costs should be allocated to: a. allocating corporatesustaining costs to distribution channels a. motivate changes in customer behavior b. customer cost hierarchy 2-.hen corporate-sustaining costs are fully allocated to distribution channels. motivating distribution-channel management c. . . the result of high discounting d. identify the most profitable customers Answer: Terms to Learn: hierarchy c Difficulty: Objective: cost allocation. greater than company-wide operating income d. contributed to evenly by most customers c.

e"pected to continue to do business with a company c. actual unit sales are less than budgeted unit sales b.ustomers are more valuable when they are all of the following 3<. eliminate long-run costs assigned to that customer b. decrease long-run profitability d. eliminate most short-run costs assigned to that customer c. the composite unit for the actual mi" is greater than for the budgeted mi" Answer: Terms to Learn: b Difficulty: static budget variance Objective: / 1*-12 . re1uire special attention on a regular basis Answer: Terms to Learn: d Difficulty: customer-profitability analysis Objective: - 155. . the mar8et-share variance and the mar8et-si9e variance c. increase the potential to cross-sell other products that are more desirable Answer: Terms to Learn: b Difficulty: customer-profitability analysis Objective: - 151. the fle"ible-budget variance and the sales-volume variance d. well 8nown in the community b. the actual sales mi" shifts toward the less profitable units d.20. should be dropped b. the actual contribution margin is greater than the static-budget contribution margin c. .ore insight into the static-budget variance can be gained by subdividing it into: a. The static-budget variance will be favorable when: a. do not e"ist because additional customer sales always increase profits Answer: Terms to Learn: b Difficulty: customer-profitability analysis Objective: - 22. Boss-causing customers: a. in an industry with high-growth potential d. should be retained because each customer adds to long-run profitability d. (ropping an unprofitable customer will: a. a cost hierarchy Answer: Terms to Learn: variance c Difficulty: 1 Objective: / static-budget variance. the sales-mi" variance and the sales-1uantity variance b. sales-volume 152.3%T: a. should be evaluated for ways to become profitable customers c. fle"ible-budget variance.

the actual contribution margin is greater than the static-budget contribution margin Answer: Terms to Learn: a Difficulty: sales-mi" variance Objective: / 1*-25 .15 . total budgeted contribution margin by the total budgeted units c. the mar8et-share variance and the mar8et-si9e variance c. the sales-mi" variance and the sales-1uantity variance b. budgeted contribution margin per composite unit for the actual mi" and the budgeted contribution margin per composite unit for the budgeted mi" d. the actual sales mi" shifts toward the less profitable units b. the composite unit for the actual mi" is greater than for the budgeted mi" c. actual unit sales are less than budgeted unit sales d. . The sales-mi" variance results from a difference between the: a. The budgeted contribution margin per composite unit for the budgeted mi" can be computed by dividing the: a. actual mar8et share and the budgeted mar8et share b. The sales-mi" variance will be unfavorable when: a.ore insight into the sales-volume variance can be gained by subdividing it into: a. actual mar8et si9e in units and the budgeted mar8et si9e in units Answer: Terms to Learn: c Difficulty: sales-mi" variance 2 Objective: / 15-. actual total contribution margin by the total budgeted units Answer: Terms to Learn: b Difficulty: composite unit 1 Objective: / 15+. a cost hierarchy Answer: Terms to Learn: a Difficulty: sales-volume variance 1 Objective: / 15*. the fle"ible-budget variance and the mar8et-si9e variance d. actual contribution margin and the budgeted contribution margin c. total budgeted contribution margin by the actual total units b. actual total contribution margin by the total actual total units d.

The sales-mi" variance will be favorable when: a. The sales-1uantity variance will be unfavorable when: a. the actual contribution margin is greater than the static-budget contribution margin b. the composite unit for the actual mi" is greater than for the budgeted mi" Answer: Terms to Learn: d Difficulty: sales-mi" variance Objective: / 150. the actual contribution margin is greater than the static-budget contribution margin d. a new competitor providing better service in the high-margin product sector b. the actual sales mi" shifts toward the less profitable units d. actual unit sales are less than budgeted unit sales c. actual unit sales are less than budgeted unit sales c. the composite unit for the actual mi" is greater than for the budgeted mi" b.6>T li8ely be caused by: a. the company e"periencing 1uality-control problems that get negative media coverage of low-margin products Answer: Terms to Learn: a Difficulty: sales-mi" variance Objective: / 152. the actual sales mi" shifts toward the less profitable units Answer: Terms to Learn: b Difficulty: sales-1uantity variance Objective: / 1*-21 . $n unfavorable sales-mi" variance would . unfavorable sales-1uantity variance c.6>T li8ely result in aGnH: a. favorable sales-mi" variance d. unfavorable sales-mi" variance b. favorable sales-1uantity variance Answer: Terms to Learn: a Difficulty: sales-mi" variance 2 Objective: / 115. a competitor having distribution problems with high-margin products c. $ shift towards a mi" of products with a lower contribution margin per unit will . the company offering low-margin products at a higher price d.15/.

$ favorable sales-1uantity variance would . the company e"periencing 1uality-control problems that get negative media coverage of low-margin products Answer: Terms to Learn: b Difficulty: sales-1uantity variance Objective: / 112.alamine and . D2.I?# I?!6&.alamine . a competitor having distribution problems with high-margin products c.55 1. the actual 1uantity of units sold and the budgeted 1uantity of unit sales in the static budget c.$TI6? $%%BI3> T6 C)3>TI6?> 11* T@&6)#@ 11/: . actual mar8et si9e in units and the budgeted mar8et si9e in units Answer: Terms to Learn: b Difficulty: sales-1uantity variance 2 Objective: / T@3 !6BB6.ontribution margin Audgeted and actual fi"ed corporate-sustaining costs are D1.55 D1.55 1. sales-volume variance b. is e1ual to the: a.+5 >ales in pounds %rice per pound Kariable cost per pound . The sales-1uantity variance results from a difference between: a. The following information is provided for the month of . actual contribution margin and the budgeted contribution margin d.+5 D5. mar8et-share variance Answer: Terms to Learn: a Difficulty: sales-volume variance 2 Objective: / 11 . . 1.+5 D2.6>T li8ely be caused by: a./+5 and D2.+5 1. sales-1uantity variance d.eylon are two brands of teas that are imported and sold to retail outlets. 1.eylon Tea %roducts has an e"clusive contract with Aritish (istributors. a new competitor providing better service in the high-margin product sector b. the actual sales mi" and the budgeted sales mi" b./55 lbs.+55 lbs D2. G$ctual sales 1uantity in units J >tatic budget sales 1uantity in unitsH " Audgeted contribution margin per unit.55 2. respectively.+5 D1.111.eylon 2.555 lbs.arch: Actual .+5 Budget . the company offering low-margin products at a higher price d.55 D .555.eylon 1.alamine . The formula.055 lbs. sales-mi" variance c. 1*-22 .55 D1.

2+5 J D ./55 " D1. !or the contribution margin. D055 unfavorable Answer: d Difficulty: 2 Objective: / Terms to Learn: static-budget variance Kariance F MG2. D . !or the contribution margin.+5H L G1. D . D 55 favorable b.11*. D2+5 unfavorable c.*+5 Answer: d Difficulty: 2 Terms to Learn: contribution margin G1.*+5 Answer: b Difficulty: 2 Terms to Learn: fle"ible budget G1.+55 " D1.+5H F D . D+55 favorable d.55H L G1.*55 J D . D ./55 " D1.*+5 11/. D 55 favorable b.2+5 d. D*.*55 c. D*.*+5 Gsee calculations for the answers to 1uestions 11* and 11+H Objective: / 1*-2 . D2+5 unfavorable c. what is the total fle"ible-budget variance= a. .055 " D5. D055 unfavorable Answer: b Difficulty: 2 Terms to Learn: fle"ible-budget variance D2+5 unfavorable F D*.hat is the contribution margin for the fle"ible budget= a. .+5HN D055 unfavorable F D*.+5HN J MG1. what is the total static-budget variance= a.55H L G1.555 " D1.2+5 d. D ./+5 b. D*./+5 b.055 " D5.*55 Objective: / Objective: / 11-.*+5 11+.hat is the actual contribution margin for the month= a. D+55 favorable d.*55 c.055 " D1. D*./55 " D1.+5H L G1.+5H F D*.

555 D15 D0 >ales in units .55 125.05 112.$TI6? $%%BI3> T6 C)3>TI6?> 110 T@&6)#@ 125: 3dna7s !lowering %lants provides the following information for the month of .hat is the budgeted contribution margin per composite unit for the budgeted mi"= a.05 b.2+5 L 1.55 c. !or .ontribution margin per unit 110.I?# I?!6&.2+5 1.ontribution margin per unit 1*-2* .ay: !uchsia 15.T@3 !6BB6.555 D2 Actual (ogwood 2. D1*. unfavorable sales-mi" variance c.+55 D15 D25 >ales in units .05 Answer: b Difficulty: 2 Objective: / Terms to Learn: composite unit MD15 " G2. unfavorable sales-volume variance Answer: a Difficulty: 2 Terms to Learn: sales-mi" variance Gsee calculations for answers to 1uestions 110 and 112H Objective: / T@3 !6BB6. D1 .ay.+55HHN L MD25 " G1.055HHN L MD25 " G1.+55HHN F D1*.2+5 1.2+5H E G2.055HHN F D1*. d. D1*. D1 . D1*.ay: Actual Tulips #eraniums 1. .05 Answer: d Difficulty: 2 Objective: / Terms to Learn: composite unit MD15 " G1.2+5 L 1.$TI6? $%%BI3> T6 C)3>TI6?> 121 T@&6)#@ 12 : 3dna7s !lowering %lants provides the following information for the month of .+55 E G2.555 2. 3dna will report aGnH: a.55 c.hat is the budgeted contribution margin per composite unit for the actual mi"= a.2+5 L 1. D1*. favorable sales-volume variance d. D1*.05 b.055 D11 D10 Budget Tulips #eraniums 2.2+5 L 1.I?# I?!6&.2+5H E G1.+55 D/ Budget !uchsia (ogwood 0.055H E G1. . favorable sales-mi" variance b. d. D1*.

555H E G15.+55 E G15.+55 D 2+ >uper 055 D0+5 D++5 1. unfavorable sales-volume variance Answer: Terms to Learn: c Difficulty: sales-volume variance Objective: / T@3 !6BB6.orporation manufactures two vacuum cleaners. D0. D2.255 D 55 D215 . D0. !or .555HHN F D2.hat is the budgeted contribution margin per composite unit for the actual mi"= a.-5 Answer: d Difficulty: 2 Objective: / Terms to Learn: composite unit MD15 " G15. D2. 3dna will report aGnH: a. The following information was gathered about the two products: Audgeted sales in units Audgeted selling price Audgeted contribution margin per unit $ctual sales in units $ctual selling price >tandard .+55HHN L MD0 " G2. D2.55 d.555 E G0.+55HHN F D2.555 L 2.+55 D0*5 1*-2+ . unfavorable sales-mi" variance c.555 L 2.555 L 2. favorable sales-mi" variance b. favorable sales-volume variance d.555 E G0. .555 L 2.-5 122.55 d.555HHN L MD0 " G2. .I?# I?!6&.ay.-5 Answer: d Difficulty: 2 Objective: / Terms to Learn: composite unit MD15 " G0.$TI6? $%%BI3> T6 C)3>TI6?> 12* T@&6)#@ 12/: The <T&$ $ppliance .-5 12 . the >tandard and the >uper.hat is the budgeted contribution margin per composite unit for the budgeted mi"= a. D2.121. D0.55 b.-5 c.anufacturing . D0.-5 c.55 b.

5.255 L 055H F 5.555 ! / 1*-2- . D2/0. 5 c.hat is the total sales-volume variance in terms of the contribution margin= a. .555 ! D2/0.25 and 5.555 favorable d. D150.555 J *.12*. D**0.555 favorable Answer: Terms to Learn: >tandard >uper c Difficulty: 2 Objective: sales-1uantity variance F G+.0 " D215 F D1-0.25 Objective: / 12+./5 and 5. .555H " .255 L 055H F 5.555 favorable c. 5. D**0.2 " D++5 F 115. D1/5.+55 J .555H " .555 ! 0+..555 ! F G+.05 d./5 Answer: a Difficulty: 1 Terms to Learn: sales-mi" variance . D115.555 favorable d. 5 and 5.555 ! D**0. D150.555 ! / 12-. 5.hat is the total sales-1uantity variance in terms of the contribution margin= a.555 favorable Answer: Terms to Learn: >tandard >uper d Difficulty: 2 sales-volume variance F G .555 favorable c. respectively= a.hat is the budgeted sales-mi" percentage for the >tandard and the >uper vacuum cleaners.05 and 055 E G .555 unfavorable b.255 E G .555 J *.25 b.255H " D215 F F G1.+55 J 055H " D++5 F Objective: D . . D2/0. 5.555 favorable b.05 and 5.

D115. . The mar8et-share variance results from a difference between the: a. the sales-mi" variance and the sales-volume variance b. the actual mar8et share is greater than the budgeted mar8et share c.555 " G.2H " D++5 F Objective: D15+. D1/5. budgeted contribution margin per composite unit for the actual mi" and the budgeted contribution margin per composite unit for the budgeted mi" d. a cost hierarchy Answer: Terms to Learn: b Difficulty: sales-1uantity variance 1 Objective: 0 122.555 favorable d.555 ! D1/5.ore insight into the sales-1uantity variance can be gained by subdividing it into: a.555 favorable b./ J . actual mar8et share and the budgeted mar8et share b. actual unit sales are less than budgeted unit sales Answer: Terms to Learn: b Difficulty: mar8et-share variance 2 Objective: 0 1*-2/ .0H " D215 F F +. The mar8et-share variance will be favorable when: a. D**0. actual contribution margin and the budgeted contribution margin c.555 favorable Answer: Terms to Learn: >tandard >uper b Difficulty: 2 sales-mi" variance F +. D2/0. the fle"ible-budget variance and the sales-volume variance d.hat is the total sales-mi" variance in terms of the contribution margin= a. actual mar8et si9e in units and the budgeted mar8et si9e in units Answer: Terms to Learn: a Difficulty: mar8et-share variance 1 Objective: 0 1 5. . actual mar8et si9e in units is less than budgeted mar8et si9e in units d. J . the fle"ible-budget contribution margin is greater than the static-budget contribution margin b.555 ! / Gsee calculations for answers to 1uestion 12-H 120.555 " G. the mar8et-share variance and the mar8et-si9e variance c.555 favorable c.12/.555 ) D2/+.

actual contribution margin and the budgeted contribution margin c. $n unfavorable mar8et-share variance would . actual unit sales are less than budgeted unit sales Answer: Terms to Learn: c Difficulty: mar8et-si9e variance 2 Objective: 0 1*-20 . a competitor providing better service b. a competitor having distribution problems c. the fle"ible-budget contribution margin is greater than the static-budget contribution margin b. actual mar8et si9e in units is less than budgeted mar8et si9e in units d. The mar8et-si9e variance results from a difference between the: a. shifts in consumer preferences that are outside of the manager7s control d. how well managers perform relative to their peers c.6>T influenced by: a. The mar8et-si9e variance will be unfavorable when: a.1 1. actual mar8et share and the budgeted mar8et share b. the company offering products at a lower price d.6>T li8ely be caused by: a. the company e"periencing 1uality-control problems that get negative media coverage Answer: Terms to Learn: 1 a Difficulty: mar8et-share variance Objective: 0 . The mar8et-share variance is . budgeted contribution margin per composite unit for the actual mi" and the budgeted contribution margin per composite unit for the budgeted mi" d. rates of inflation Answer: Terms to Learn: b Difficulty: mar8et-share variance Objective: 0 1 2. actual mar8et si9e in units and the budgeted mar8et si9e in units Answer: Terms to Learn: d Difficulty: mar8et-si9e variance 1 Objective: 0 1 *. the actual mar8et share is greater than the budgeted mar8et share c. economic downturns in the economy b.

555 2: D15. D1.55 D +.-55 ! d. no industries b.+55 ) c. all industries Answer: Terms to Learn: c Difficulty: 2 Objective: mar8et-si9e variance. mar8et-share variance 0 T@3 !6BB6.555 5: D11.555 J 11. . a new competitor moving into the area d.I?# I?!6&. the automobile and television industries d.1 +. the company reducing the services provided to customers b.+55 ) 2 Objective: 0 15.555 ! Answer: b Difficulty: Terms to Learn: mar8et-si9e variance G15.6>T li8ely be caused by: a. $ favorable mar8et-si9e variance would . 5 " D+ F D1. an increase in overall mar8et si9e c. D1. D+55 ) b.hat is the mar8et-si9e variance= a. &eliable information about mar8et si9e and mar8et share is available for: a. D1.ompany manufactures remote control devices for garage doors.$TI6? $%%BI3> T6 C)3>TI6?> 1 / T@&6)#@ 1 2: Oorro . The following information was collected during Pune: $ctual mar8et si9e GunitsH $ctual mar8et share $ctual average selling price Audgeted mar8et si9e GunitsH Audgeted mar8et share Audgeted average selling price Audgeted contribution margin per composite unit for budgeted mi" 1 /.55 1*-22 . a competitor providing better prices Answer: Terms to Learn: b Difficulty: mar8et-si9e variance Objective: 0 1 -.555H " 5.55 11. the management consulting and personal financial planning industries c.

555 @ouse-@elper 25.555 ! F D+55 ) Gsee calculations for answers to 1uestions 1 / and 1 0H Objective: 0 2 Objective: 0 T@3 !6BB6.555 d.hat is the contribution margin for the fle"ible budget= a.555 D .+55. D+55 ) d. 2 J 5.225. . D1.555 ! b.255. D1. D1.555 " G5.555 units.555 b. 1*5.555 Total 2.255.555 D1. D1.555 ! c.555 c. the O3?IT@ for commercial building use and the @ouse-@elper for residences.$TI6? $%%BI3> T6 C)3>TI6?> 1*5 T@&6)#@ 1*0: The >asita .555 %rior to the beginning of the year.555 Total 2+.hat is the mar8et-share variance= a.555 D .*55.orporation manufactures two types of vacuum cleaners.ontribution margin Actual Results ?umber sold .555 Answer: Terms to Learn: d Difficulty: contribution margin 2 Objective: / 1*.+55 ) Answer: a Difficulty: Terms to Learn: mar8et-share variance 15. Answer: c Difficulty: 2 Terms to Learn: sales-1uantity variance D1. D+.+55.I?# I?!6&.1 0.5 .555. D+55 ) d. but actual industry volume was 2+-. D+. .555 D1.205.555 @ouse-@elper 20. The variance cannot be determined.555 units.555 ! 1 2.555 D+.ontribution margin O3?IT@ +. a consulting firm estimated the total volume for vacuum cleaners of the O3?IT@ and @ouse-@elper category to be 2+5.155 ! c. . 5H " D+ F D1.+55 ) b.255.hat is the sales-1uantity variance= a. D1.255. Audgeted and actual operating data for the year 25<+ were as follows: Static Budget ?umber sold .+55 ) L D1. D1.555 D*.555 O3?IT@ *. D*.

555 Objective: / 1*2.2-5.hat is the total sales-volume variance in terms of the contribution margin= a.555 favorable F D*.hat is the total static-budget variance in terms of the contribution margin= a.555 20.255.555 F D1+5 Fle ible-budget contribution margin: *. D -5.555 favorable c. .555 favorable b.555 favorable c.Budgeted contribution margin per unit: O3?IT@ F D1. D/55. D -5.hat is the total fle"ible-budget variance in terms of the contribution margin= a.555 1*1.555 Gsee calculation for answer to 1uestion 1*5H Objective: / 1* .555 F D 55 @ouse-@elper F D . D -5. D1.555 D+. D -5.255.255.555 favorable b.555 unfavorable d.555 Gsee calculation for answer to 1uestion 1*5H Objective: / 1**.555 " D1+5 F *.555E25.+55.255.555 " D 55 F D1.1 .*55. D255.555 favorable F D*. D255. . . D255. D1.555 unfavorable d.555 favorable Answer: Terms to Learn: d Difficulty: sales-1uantity variance Objective: / 1*. .555 J D+.555E+.555 unfavorable Answer: c Difficulty: 2 Terms to Learn: fle"ible budget variance D255.555 J D+.555 favorable c. D255.555 unfavorable F D+.*55.555 unfavorable Answer: b Difficulty: 1 Terms to Learn: static-budget variance D/55.555.555 unfavorable Answer: a Difficulty: 2 Terms to Learn: sales-volume variance D255.555 favorable b. D255.2-5.hat is the total sales-1uantity variance in terms of the contribution margin= a.+55.555 unfavorable d. D255.555 unfavorable b.*55.555 favorable c.555 J D+.555 unfavorable d. D/55. D255.+55. D255.

.555E2+.555 F 5.Budgeted sales-mi percentage: O3?IT@ F +.-2+ b.555E 2. D1-2.2-5.25 " D 55 G 2.25 Actual sales-mi percentage: O3?IT@ F *.+55. D105.255H " 2. D255.555 F 5.555 unfavorable c.555E2+.555 d.Audgeted products sold sales-mi" : 2.555 F 5.555 ! F D -5.555 ) D -5.555 F 5.. D1*5.055H " Objective: Audgeted .0 F 6& D*.hat is the budgeted contribution margin per composite unit of the budgeted mi"= a.555 " G5. D1.555 favorable Answer: Terms to Learn: Sales-"i# a!iance O3?IT@ @ouse-@elper Total b Difficulty: sales-mi" variance $ctual units $ctual sales-mi" of all : .555E 2. D250.555 F 2 D -5 125 D105 Objective: 0 1*.555 J 2+.555 ! $ctual units of all Audgeted Audgeted products sold J sales-mi" : .555E2+.555 ! F D 0*5. D -5.555 favorable d.2-5.555 ! D1. .555 unfavorable b.555 c.555 ) 1*-.12+ Salesquantity a!iance O3?IT@ @ouse-@elper Total @ouse-@elper F 25.555H " 5.05 " D1+5 1*+.0/+ $ 5.12+ $ 5. Audgeted units of per unit all products sold G 2. D255.2 .555 " G5.555 J 2+.+55 Answer: b Difficulty: Terms to Learn: composite unit O3?IT@ F D 55 " .555H " 5.0/+ >ales-1uantity variance F D *25. per unit D 55 D1+5 / >ales-mi" variance F D/25..hat is the total sales-mi" variance in terms of the contribution margin= a.05 @ouse-@elper F 20.2 F @ouse-@elper F D1+5 " .

12+ Budgeted mar!et share F 2+.555 ! c.ar8et-si9e variance >asita ..555 ! Answer: Terms to Learn: Ma!%et-s'a!e a!iance c Difficulty: mar8et-share variance $ctual mar8et si9e in units 2+-.555 ! 1*2.1*/. .1+2.hat is the mar8et-share variance= a.hat is the mar8et-si9e variance= a.555 ) d.555H " Objective: 0 Audgeted . .2-5.555E2+5.155 Ma!%et-si&e a!iance $ctual mar8et Audgeted si9e in units $ mar8et share Audgeted mar8et si9e in units G2+-.1+2.555 ! b. D -5. per composite unit for budgeted mi" D105 0 . per composite unit for budgeted mi" D105 . D1. D1.555 $ 5.555 ! Answer: b Difficulty: Terms to Learn: mar8et-si9e variance Actual mar!et share F 2.orp F D1..555 ) b.555E2+-. D1. . mi" and yield variances d. D150.ar8et-share variance >asita .555 F 5. mar8et-share and mar8et-si9e variances c.orp F D150. D -5.12+ $ 5.555 " $ctual mar8et share J Audgeted mar8et share G5.155H " Objective: Audgeted . mi" and volume variances b.555 ! d.ore insight into the fle"ible-budget variance for direct materials can be gained by subdividing it into the direct materials: a. D1.555 ! c.555 ! 1*0. price and efficiency variances Answer: Terms to Learn: d Difficulty: 2 Objective: $ direct material price variance. D150.155 " 2+5.1+2.555 F 5.2-5. direct material efficiency variance 1*- .

The materials yield variance will be unfavorable when: a. actual unit sales are less than budgeted unit sales Answer: Terms to Learn: c Difficulty: 2 direct materials yield variance Objective: $ 1+ . The direct materials mi" variance will be favorable when: a. the fle"ible-budget contribution margin is greater than the actual contribution margin b.ore insight into the efficiency variance for direct materials can be gained by subdividing it into the direct materials: a. The direct materials mi" variance is the: a. average of the direct materials mi" variances for each input b. . the fle"ible-budget contribution margin is greater than the actual contribution margin b. multiple of the direct materials mi" variances for each input Answer: Terms to Learn: b Difficulty: 2 direct materials mi" variance Objective: $ 1*. the actual direct materials input mi" is less e"pensive than the budgeted direct materials input mi" c.1+5.* . actual unit sales are less than budgeted unit sales Answer: Terms to Learn: b Difficulty: 2 direct materials mi" variance Objective: $ 1+2. difference between the direct materials mi" variances for each input d. mi" and yield variances. price and efficiency variances Answer: Terms to Learn: c Difficulty: 2 Objective: $ direct materials mi" variance. d. direct materials yield variance 1+1. the actual direct materials input mi" is less e"pensive than the budgeted direct materials input mi" c. the actual 1uantity of total inputs used is greater than the fle"ible budget for total inputs d. mi" and volume variances b. the actual 1uantity of total inputs used is greater than the fle"ible budget for total inputs d. sum of the direct materials mi" variances for each input c. mar8et-share and mar8et-si9e variances c.

/.+ . @ours of computer use per month per department 1c. Allocation bases for which the information system can provide data: 1. e. .achine hours by department 6perations costs of each department @ours of computer use per month per department Indirect labor-hours per department "ost pools: IIIIIII IIIIIII IIIIIII IIIIIII IIIIIII a. c. ?umber of employees per department 3mployee wages and salaries per department %roduction facility s1uare footage @ours of operation of each production department . -. -a. .achine-hours by department *e. $n allocation base may be used only once. @ours of operation of each production department Difficulty: 2 Objective: Terms to Learn: cost allocation 1*. *. b. !or each cost pool listed select an appropriate allocation base from the list below. 2. Kice %resident of !inance7s office e"penses .E(ERCISES A)* PROBLEMS 1+*.omputer operations used in conjunction with manufacturing %ersonnel (epartment . d. $ssume a manufacturing company. 6perations costs of each department /b.anufacturing machinery cost 3nergy costs Ans+e!. ?umber of employees per department +d. +. 0.

The following profitability data apply to five customers: .ustomer &evenues D 55 255 05 /+ +5 .hat problems might @andy-.or8 with the customers so their behavior reduces overall costs. 1. 1*.ustomer .ompute the operating income for each of the five customers. . . (etermine whether the operating income pattern will probably continue or not and why.- . b. 2.arveline Aurnett P Pac8son &oger Pones %aul >aas Aec8y >tephan . %ay increased attention to the profitable customers >tephan and Aurnett.hat options should @andy-. . .ustomer . $s a last resort.1++. &ecords are 8ept on the time and material costs used for each repair.ustomer &evenues D 55 255 05 /+ +5 .arveline Aurnett P Pac8son &oger Pones %aul >aas Aec8y >tephan . . .aybe a different fee schedule needs to be implemented depending on the age of the house. a. &educe costs with better scheduling. etc.osts D22+ 5+ /+ 115 225 6perating income D /+ G15+H + G +H 1 5 b. 3ach client pays a fi"ed monthly service fee based on the number of rooms in the house.an >ervices consider in light of the customerprofitability results= c. @andy-. >ee8 ways of reducing costs and increasing revenues for the loss accounts of P Pac8son and %aul >aas.osts D22+ 5+ /+ 115 225 Requi!ed: a. . the distance to the home.an >ervices encounter in accurately estimating the operating costs of each customer= Ans+e!. if the repair is preventive or an emergency.an >ervices is a repair-service company speciali9ing in small household jobs. the company may want to discontinue the Pac8son account if the customer does not agree to a fee increase and the operating loss pattern is e"pected to continue.

D2+ 11 D1* 0. . . The monthly budget for ). and still others may Qchit-chatQ more with the clients than others.F 120.555. D2+ 12 D1 Alue 0. a.555 " D1* F D 20. The following information is provided for .555 " D1. (etermine the total static-budget variance. >tatic-budget contribution margin: 1*.ontribution margin /.255 D222.255 0.>.-55 " D1/ F 1*-.*55 " D1 F D 0 . . a forecast of industry sales.c. mar8et.offee. how is the cost of a trip for parts for three different customers allocated= Difficulty: 2 Objective: Terms to Learn: customer-profitability analysis 1+-. and the total sales-volume variance in terms of the contribution margin. Inc.*55 b.alculate the contribution margin for the static budget./ .alculate the actual contribution margin for the month. Ans+e!. a.ountain >ales in pounds %rice per pound Kariable cost per pound . c. D 5 1* D1Budget .555 -.555 D22-.ountain . $ctual contribution margin: /. The basic underlying records may not be accurate. sells two types of coffee.555 lbs. Requi!ed. . respectively. .ountain.>.-55 lbs D 5 1 D1/ Audgeted and actual fi"ed corporate-sustaining costs are D-5. !or e"ample. b. and the companyRs e"pected share of the ).555 0. . d. others may be less e"perienced and slower.osts that are allocated to more than one customer may be distorting operating income.olombian -.olombian and Alue . %roblems in accurately estimating operating costs of each customer include: 1. >ome repair personnel may be efficient and more e"perienced. $romatic ..*55 lbs. the total fle"ible-budget variance.555 and D/2.olombian Alue . 2.555 lbs.alculate the contribution margin for the fle"ible budget.arch: Actual . coffee sales is based on a combination of last yearRs performance.

sales volume variance 1*.555 D22/.555 " D1 F D 21.c.*55 unfavorable F D222.555 Difficulty: 2 Objective: / Terms to Learn: contribution margin.555 " D1/ F 1 -.555 >ales-volume variance is D2.*55 $ D22-.*55 $ D22/. fle"ible budget variance.555 $ D22-.555 0.0 .555 unfavorable F D22/.555 d. >tatic-budget variance is D .555 !le"ible-budget variance is D1. static budget variance.*55 unfavorable F D222. !le"ible-budget contribution margin: /.

25H " D25N MG155. .0*5 favorable Total sales-1uantity variance D2. *5.555 " 5.2/*.21N " D25T F D 52.ompute the following variances in terms of the contribution margin.&s SMG155. a.555 J 0*./2N " D1+-T F 1.055.555 D155 K.&s MG155.*55 favorable K. F F D1.555 " 5.555 D1+0 Requi!ed.555 favorable L D2. b. the following activities occurred: Audgeted units sold Audgeted contribution margin per unit $ctual units sold $ctual contribution margin per unit TKs 1/.555 unfavorable L D1+-. 2*.555 $ 0*.555 favorable Total sales-mi" variance F D25.2*5 favorable Total sales-volume variance F D--.555 D 25.555 favorable F D--.2*5 favorable c. TKs MG155.555 unfavorable Ans+e!.555H " 5.21H " D25N K./2H " D1+-N F D12.1+/. c. (etermine the total sales-mi" variance.555 1. a.2/1.555 F 12. Difficulty: Objective: / Terms to Learn: sales-volume variance.2/*. sales-1uantity variance 1*. @arryRs 3lectronics manufactures TKs and K. -5 D1+05.555 " 5.555H " 5.555 favorable. (etermine the total sales-1uantity variance.2 .05H " D1+-N G155.&s. b. (etermine the total sales-volume variance.&s --.*05.025. (uring !ebruary.2*5 favorable F D2.555 D 1+-. sales-mi" variance. TKs SMG155.-*5 D25 25.555 " 5.

Ans+e!. the mar8et-si9e variance.ar8et-share variance D1.555 " 5.*55 ) >ales-1uantity variance D*.22 Requi!ed.ar8et-si9e variance D+.1+0.555 10: D1.ompute the mar8et-share variance. sales-1uantity variance 1*-*5 . >peedy %rinting manufactures soft cover boo8s. the following information is available: Audgeted mar8et si9e GunitsH Audgeted mar8et share Audgeted average contribution margin per unit $ctual mar8et si9e GunitsH $ctual mar8et share $ctual average contribution margin per unit 12+.-55 12+. 155.255 ) Difficulty: 2 Objective: 0 Terms to Learn: mar8et-share variance. !or Panuary.25 F D2/.10 " D1.12 " D1.555 " 5.25 155.555 12: D1.10 " D1.25 F D22. and the sales1uantity variance in terms of the contribution margin.555 " 5.055 155.25 F D21.255 ! . mar8et-si9e variance.555 . .

/+5.555 D1+.555 $ D1-. b.555. (etermine the total static-budget variance. The 6mega .ontribution margin Actual Results ?umber sold .*55.555 b.+55 " D255 F /.555 $ D1-.555 favorable F D1+.+55 " D2+5 F D *. Audgeted and actual operating data for the year 25<+ are as follows: Static Budget ?umber sold ./+5.555E-5.555 0.ontribution margin O3?IT@ 1+.555 F D2+5 @ouse-@elper F D12.02+.555 Difficulty: 2 Objective: / Terms to Learn: contribution margin.555 D .555 Total /+.555 >ales-volume variance is D .555 unfavorable F D1+.+/+. Budgeted contribution margin per unit: O3?IT@ F D . >tatic-budget variance is D-+5.orporation manufactures two types of vacuum cleaners: the O3?IT@ for commercial building use and the @ouse-@elper for residences./+5. fle"ible-budget variance.555E1+. sales volume variance 1*-*1 .12+.555 D12. !le"ible-budget contribution margin: 1-./55.555 O3?IT@ 1-.alculate the contribution margin for the fle"ible budget.+55 D-. Ans+e!. static-budget variance.555 Requi!ed.1+2.555 !le"ible-budget variance is D*.555.255.+55 D15./+5.255. a.555 $ D11.02+.555 F D255 a.*55./+5.555 @ouse-@elper 0.22+.555 D11.*55. and the total sales-volume variance in terms of the contribution margin. .555 D1-.555 Total ++.555 @ouse-@elper -5.555 favorable F D11. the total fle"ible-budget variance.02+.

/+5.255.555 F 5: @ouse-@elper F -5./ $ 5.+55 D15.555 @ouse-@elper 0.555 J /+. $ 5.255.555 F D255 Sales-"i# $ctual units $ctual salesAudgeted .555..555E/+. per unit 5.555.555 " G5. Budgeted sales-mi percentage: O3?IT@ F 1+.555 ) 1*-*2 .555 J /+.555 @ouse-@elper -5.+55E++.+55E++.555 F D2+5 @ouse-@elper F D12.255.555 D1+.555 D1-.555H " Audgeted Audgeted sales-mi" : . /+./+5. sales-1uantity variance $ctual units of all products sold J Audgeted units of all products sold G++.555 Requi!ed.0 " D2+5 D255 >ales-1uantity variance F D1..ontribution margin Actual Results ?umber sold .155.555 ++.555E1+. Gin terms of the contribution marginH Ans+e!./+5. Audgeted and actual operating data for the year 25<+ are as follows: Static Budget ?umber sold .555 ) D*.555 Total ++. .555 F /5: Budgeted contribution margin per unit: O3?IT@ F D .555E/+.555H " G++.1-5. >ales-mi" a!iance of all mi" : $ per unit variance products sold Audgeted sales-mi" : O3?IT@ ++.255.2 " 5.0H " D255 ) Total D 2/+.555E-5.+55 D-.555 " G5.555 D .orporation manufactures two types of vacuum cleaners: the O3?IT@ for commercial building use and the @ouse-@elper for residences.555 Total /+. and in total.555 D12.555 F 05: @ouse-@elper F 0.555.2H " D2+5 F D1.555 ! @ouse-@elper F D1.*55.ompute the sales-mi" variance and the sales-1uantity variance by type of vacuum cleaner.555 ! Salesquantity a!iance O3?IT@ @ouse-@elper Total Difficulty: Objective: / Terms to Learn: sales-mi" variance. The 6mega .555 O3?IT@ 1-.555 ) F D .ontribution margin O3?IT@ 1+.555 F 25: Actual sales-mi percentage: O3?IT@ F 1-.

555 D1+.555E2/+. but actual industry volume was only 2/+.555 F 5.555 units. mar8et-si9e variance 1*-* ..2 F D +5 @ouse-@elper F D255 " 5.555 D1-./+5../+5.555E/+.555E 55.orp $ctual Audgeted mar8et si9e in mar8et share units $ Audgeted mar8et si9e in units G2/+.555 $ 5. . a consulting firm estimated the total volume for vacuum cleaners of the Oenith and @ouse-@elper category to be 55./+5. per composite unit for budgeted mi" .555 @ouse-@elper -5.555.255.555 %rior to the beginning of the year.+55 ) Difficulty: Objective: 0 Terms to Learn: mar8et-share variance.555 Total /+.ontribution margin O3?IT@ 1+. Audgeted and actual operating data for the year 25<+ are as follows: Static Budget ?umber sold .555 D .555 " $ctual mar8et share J Audgeted mar8et share G5.555 units.ar8et-share variance F D2.2+H " Audgeted .25 Budgeted mar!et share: F /+.ar8et-si9e variance 6mega .555 @ouse-@elper 0.0 F 1-5 6& D1+.orp Ma!%et-si&e a!iance $ctual mar8et si9e in units 2/+.orporation manufactures two types of vacuum cleaners.*55. 12. The 6mega .ontribution margin Actual Results ?umber sold .1-1. per composite unit for budgeted mi" D215 Audgeted .2+ " 55. Requi!ed.2 $ 5.555 O3?IT@ 1-.255.00/.555 D12. Actual mar!et share: F ++.2+ Budgeted contribution margin per composite unit of budgeted mi : O3?IT@ F D2+5 " 5.+55 D-.555 F 5. Ans+e!.+55 D15.+55 ) .555H " D215 F D1.555 Total ++. the O3?IT@ for commercial building use and the @ouse-@elper for residences.555F D215 Ma!%et-s'a!e a!iance 6mega .ompute the mar8et-share variance and mar8et-si9e variance in terms of the contribution margin.

b.555 >ales-volume variance is D000.hair .ompute the sale-mi" variance and the sales-1uantity variance by type of chair.+2-.555 favorable F D /.*55 " D155 F D2*. and the other for the office mar8et.ompute the total static-budget variance.555E2-5. +-.555 6ffice 1*5.500. and the total sales-volume variance.555 unfavorable F D 0.555 D 0.555 !le"ible-budget variance is D2.255. an office products research firm estimated the industry volume for residential and office chairs of the type sold by the .*55 D22.1-2.555 6ffice 1-+.-55 " D05 F D1 .255.*55. . $ctual industry volume for the year 25<+ was only 2.555 D2-.255.555 $ D 0.555 Total *55.555.hair .ompany manufactures two modular types of chairs: one for the residential mar8et.555 unfavorable F D /.555 chairs.255. a.555 F D05 Fle ible-budget contribution margin: &esidential 2*0.555 1*-** . . .555 $ D +.555 F D155 6ffice F D11.2*0.555 6ffice 1-+.ontribution margin &esidential 2-5. and in total.0*5.ompany to be 2.555 &esidential 2*0.500. Audgeted and actual operating data for the year 25<+ are: Static Budget ?umber of chairs sold .-5*.555E1*5.555 >tatic-budget variance is D1.555.ompute the following variances in terms of contribution margin: a.555.-5*. Requi!ed. . the total fle"ible-budget variance. c.ontribution margin Actual Results ?umber of chairs sold .555 Total *1*. Budgeted contribution margin per unit: &esidential F D2-.555 D +.555 D11.555 $ D +.555 D /.500. The .-5*.255.2*0.555 %rior to the beginning of the year. Ans+e!.-55 D1 .ompute the mar8et-share variance and mar8et-si9e variance.255.*0*.

-+ " 5.555 F -5: 6ffice F 1-+.555 F 10.555 ) F D1. Actual sales-mi percentage: &esidential F 2*0.555H " F D 215.555 D2 Ma!%ets'a!e a!iance .ar8et-share variance F D*.-+-.555E*55.555 F *5: Budgeted sales-mi percentage: &esidential F 2-5.555 F +: Sales-"i# a!iance &esidential 6ffice Total Salesquantity a!iance &esidential 6ffice Total c. per unit D155 D05 >ales-mi" variance F D2.555E 2.555 F 1-. per composite unit for budgeted mi" D2 .555 ! D1.555 ) >ales-1uantity variance $ctual units of all products sold J Audgeted units of all products sold G*1*.555 F -+: 6ffice F 1*5.555 ! D *1*.*52.*55E*1*.555 " $ctual mar8et si9e in units $ctual mar8et share J Audgeted mar8et share G5..1001010 $ 5.555 $ *55... 52.omp any 2.1001010 F *55.555 ! ($nswers may vary due to rounding) 1*-*+ .----/: or 5.* $ 5.555 " *1*.hair .1-----/H " Audgeted .555E 2.*55. +H " Audgeted sales-mi" : 5.555H " G*1*.255.-+ F D-+ 6ffice F D05 " . + " D155 D05 Audgeted . $ctual units of all products sold *1*.255..555E*55.555E*55.555 ! FD 22.$ 5.555 " $ctual sales-mi" Audgeted : $ Audgeted . + F 20 6& D /.5/5.b.555 $ *55.01010: or 5.255.1-----/ Actual mar!et share Budgeted mar!et share Budgeted contribution margin per composite unit of budgeted mi : &esidential F D155 " .-+H " G5. sales-mi" : per unit G5.-55E*1*.555 ! F *1*.

sales-volume variance. fle"ible budget variance. sales-1uantity variance.555 $ 2.1-----/ " F D . mar8et-share variance. sales-mi" variance. 0 Terms to Learn: static-budget variance.*55.hair .155.555H " Audgeted mar8et share Audgeted . per composite unit for budgeted mi" D2 .255.omp any 5.ar8et-si9e variance .555 ) G$nswers may vary due to roundingH Difficulty: Objectives: /.. mar8et-si9e variance 1*-*- .Ma!%et-si&e a!iance $ctual mar8et si9e in units $ Audgeted mar8et si9e in units G2.

. distribution. and customer service. $n electronics manufacturer is trying to encourage its engineers to design simpler products so that overall costs are reduced.hy= Ans+e!.hich of the value-chain function costs G&'(. These costs include the cost of design. Requi!ed. To provide information for economic decisions. To justify costs or compute reimbursement. allocating corporate costs such as accounting support to division managers to discourage re1uesting a multitude of unnecessary financial reports. Difficulty: 2 Objective: Terms to Learn: cost allocation 1 1-*. 1. allocating manufacturing overhead when costing inventories for financial statements presented in the company7s annual report.CRITICAL THI)-I). *. production. $ company might choose to allocate corporate costs to various divisions within the company for what four purposes= #ive an e"ample of each. 2. . $ll costs that are affected by the design should be included in the product cost estimate. customer serviceH should be included in product-cost estimates to achieve the above purpose= . To motivate managers and employees. ?ote: 3"amples will vary. for e"ample. production. for e"ample. Difficulty: 1 Objective: 1 Terms to Learn: cost allocation 1*-*/ . distribution. mar8eting. . to allocate fi"ed design and production costs when arriving at a fair price for a government contract. design. for e"ample. allocating costs from all si" value-chain functions to decide on the selling price of a customi9ed product. 1. for e"ample. To measure income and assets for reporting to e"ternal parties. Ans+e!.

(istribution-channel costs.orporate-sustaining costs.ustomer batch-level costs. a company will often not choose to allocate certain corporate costs that are not perceived as being controllable by division management. Difficulty: 2 Objective: Terms to Learn: customer cost hierarchy + 1*-*0 . . Bist at least three different levels of costs in a customer-cost hierarchy and an e"ample of each. . product-handling costs of each product sold 2. . $lso. %articularly if performance evaluations are based on these allocations. a particular distribution channel manager7s salary +. companies that want to calculate the full cost of products in order to ma8e some economic decision must allocate corporate costs to indirectcost pools of divisions.ustomer-sustaining costs. $llocating all corporate costs motivates division managers to e"amine how corporate costs are planned and controlled. Bist any three of the following: 1. that are widely perceived as either causally related to division activities or provide e"plicit benefits to divisions. >ome companies do not allocate corporate costs to divisions because these costs are not controllable by division managers. such as corporate human resources.ustomer output unit-level costs. Ans+e!. . Difficulty: 2 Objectives: Terms to Learn: cost allocation 1--. order processing costs incurred . >hould a company allocate its corporate costs to divisions= Ans+e!: >ome companies allocate all corporate costs to divisions because corporate costs are incurred to support division activities. costs of top management ?ote: 3"amples will vary. costs of visits to the customer *.1-+. 6ther companies allocate only those corporate costs.

might be charged more for some of the resources of the company that it is using in e"cess of other customers. mar8et-si9e variance. Difficulty: 2 Objectives: /. and the mar8et-share and mar8et-si9e variances help to e"plain the sales-1uantity variance. Kariances help to inform managers about the reasons Gwhether favorable or unfavorableH for the differences between the actual result and the budgeted result.1-/. the sale-mi" and the sales-1uantity variances help to e"plain the sales-volume variance. sales-1uantity variance. .ustomer profitability analysis highlights how individual customers contribute to profitability.hy would a manager perform customer-profitability analysis= Ans+e!.hat actions might be ta8en with an unprofitable customer= Ans+e!: $n unprofitable customer might be dropped as a customer. a manager must 8eep informed on whether organi9ational initiatives are progressing as planned.hy would a manager want to calculate the sale-mi" and the sales-1uantity variances= .ar8et-share and mar8et-si9e variances= Ans+e!. mar8et-share variance 1*-*2 . >pecifically. Difficulty: 2 Objective: Terms to Learn: customer-profitability analysis 1-0. or heEshe might be counseled on how to use less resources and be restored to profitability in the future. It helps managers determine whether customers who are contributing significantly to profits are receiving a comparable level of attention from the organi9ation. 0 Terms to Learn: sales-mi" variance. . . To manage effectively and ma8e proper decisions. . Difficulty: 2 Objectives: Terms to Learn: customer profitability analysis 1-2.