PREPARE FOR EXAM WITH CVP AND COST FLOW PROBLEMS

MAY THESE PROBLEMS HELP YOU IN PREPARING FOR THE EXAM ON DECEMBER 3, 2019.
CVP ANALYSIS
Foris Company's product sells for $16 and has a variable cost per unit of $12.
Fixed costs are $120,000.
a. Compute the break-even point in dollars.
b. Compute the number of units Foris must sell to earn a $30,000 profit.
c. Foris has a target profit of $36,000 and expects to sell 30,000 units.
Compute the selling price Foris must charge to earn the target profit.
d. Foris wants to keep its selling price at $8 per unit and earn a 10% return
on sales. Calculate the number of units Foris must sell to meet the target.
SOLUTION:
a. $480,000, $120,000/25% or $120,000/[($16 - $12)/$16]
b. 37,500, ($120,000 + $30,000)/($16 - $12)
c. $17.20, $12 + [($120,000 + $36,000)/30,000]
d. 50,000, $120,000/[$16 - $12 - (.10 x $16)]

or [$120,000/(25% - 10%)]/$16
Stout Company sells three products. Planned results for next year follow.
Product
A B C
---- ---- ----
Selling price $10 $ 8 $ 4
Variable cost 4 6 1
--- --- ---
Contribution margin $ 6 $ 2 $ 3
=== === ===
Sales mix in dollars 25% 25% 50%
a. Compute the weighted-average contribution margin percentage.
b. Compute the sales (in $) required to earn a $100,000 profit.
c. Suppose now that the sales mix, in UNITS, is 25%, 25%, 50%. Determine the
weighted-average contribution-margin per unit.
d. Determine the total unit sales needed to earn $100,000.
SOLUTION:
a. 58.75%
A B C Total
--- --- --- -----
Contribution margin percentage 60% 25% 75%
Sales mix in dollars 25% 25% 50%
--- --- ---
Weighted-average 15% + 6.25% + 37.5% = 58.75%
b. $1,021,277 [($500,000 + $100,000)/.5875]
c. $3.50
A B C Total
--- --- --- -----
Contribution margin per unit $6.00 $2.00 $3.00
Sales mix in units 25% 25% 50%
----- ----- -----
Weighted-average $1.50 + $0.50 + $1.50 = $3.50
d. 171,429, ($500,000 + $100,000)/$3.50
Acme Company's product sells for $80 and has a variable cost per unit of $60.
a. Compute the break-even point in dollars.
b. Compute the number of units must Acme sell to earn a $100,000 profit.
c. Acme has a target profit of $152,000 and expects to sell 30,000 units.
Compute the selling price Acme must charge to earn the target profit.
d. Acme wants to keep its selling price at $40 per unit and earn a 10% return
on sales. Calculate the number of units Acme must sell to meet the target.
SOLUTION:
a. $1,600,000 {$400,000/25% or $400,000/[($80 - $60)/$80]}
b. 25,000 [($400,000 + $100,000)/($80 - $60)]
c. $78.40 {$60 + [($400,000 + $152,000)/30,000]}
d. 33,333 {$400,000/[$80 - $60 - (.10 x $80)]}

or [$400,000/(25% - 10%)]/$80
Jill Hayes operates a bed and breakfast hotel in a resort area in the Smoky Mountains. Depreciation on the hotel
is $60,000 per year. Jill employs a maintenance person at an annual salary of $32,000 and a cleaning person at
an annual salary of $24,000. Real estate taxes are $10,000 per year. The rooms rent at an average price of $60
per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $8.00 per
person per night and the cost of food which is $4.00 per person per night.
Instructions
(a) Determine the number of rentals and the sales revenue Jill needs to break even using the contribution
margin technique.
(b) If the current level of rentals is 3,000, by what percentage can rentals decrease before Jill has to worry
about having a net loss?
(c) Jill is considering upgrading the breakfast service to attract more business and increase prices. This will
cost an additional $3.00 for food costs per person per night. Jill feels she can increase the room rate to $65
per person per night. Determine the number of rentals and the sales revenue Jill needs to break even if the
changes are made.
Solution
(a) Variable costs per person per night: Fixed costs:
Laundry and cleaning $ 8.00 Depreciation $ 60,000
Breakfast 4.00 Maintenance 32,000
Total variable $12.00 Cleaning 24,000
Real estate tax 10,000
Total fixed $126,000
Break-even number of persons per night rentals:
Fixed costs $126,000

—————————————————— = ————— = 2,625 rentals
Contribution margin per person per night $48*
*Sales price per unit $60.00

Variable cost per unit 12.00
Contribution margin per unit $48.00
Break-even sales in dollars:

——————————— = ————— = $157,500
Contribution margin ratio 80%**
**Contribution margin per unit (a) $48
Sales price per unit (b) $60
Contribution margin ratio (a) ÷ (b) = 80%
(b) Margin of safety:
Actual rentals - Break-even rentals (3,000 – 2,625)

———————————————— = ——————— = 12.5%
Actual rentals 3,000
(c) Variable costs per person per night: Fixed costs:

Laundry and cleaning $ 8.00 Depreciation $ 60,000
Breakfast 7.00 Maintenance 32,000
Total variable $15.00 Cleaning 24,000
Real estate tax 10,000
Total fixed $126,000
Break-even number of persons per night rentals:

—————————————————— = ———— = 2,520 rentals
Contribution margin per person per night $50*
*Sales price per unit $65

Variable cost per unit 15
Contribution margin per unit $50
Break-even point in sales dollars: 2,520 × $65 = $163,800
COST FLOW
From the account balances listed below, prepare a schedule of cost of goods manufactured for Timmons
Manufacturing Company for the month ended December 31, 2008.
Account Balances
Finished Goods Inventory, December 31 $42,000
Factory Supervisory Salaries 12,000
Income Tax Expense 18,000
Raw Materials Inventory, December 1 12,000
Work In Process Inventory, December 31 25,000
Sales Salaries Expense 14,000
Factory Depreciation Expense 8,000
Finished Goods Inventory, December 1 35,000
Raw Materials Purchases 95,000
Work In Process Inventory, December 1 30,000
Factory Utilities Expense 4,000
Direct Labor 70,000
Raw Materials Inventory, December 31 19,000
Sales Returns and Allowances 5,000
Indirect Labor 21,000
Solution
TIMMONS MANUFACTURING COMPANY
Cost of Goods Manufactured Schedule
For the Month Ended December 31, 2008
Work in process, December 1 $ 30,000

Direct materials
Raw materials inventory, December 1 $12,000
Raw materials purchases 95,000
Total raw materials available for use 107,000
Less: Raw materials inventory, December 31 19,000
Direct materials used 88,000
Direct labor 70,000
Manufacturing overhead
Indirect labor $21,000
Factory supervisory salaries 12,000
Factory depreciation expense 8,000
Factory utilities expense 4,000
Total manufacturing overhead 45,000
Total manufacturing costs 203,000
Total cost of work in process 233,000
Less: Work in process, December 31 25,000
Cost of goods manufactured $208,000
The following costs and inventory data were taken from the accounts of Reser Company for 2008:
January 1, 2008 December 31, 2008
Inventories:
Raw materials $ 8,000 $ 7,000
Work in process 15,000 13,000
Finished goods 16,000 10,000
Costs incurred:
Raw materials purchases $93,000
Direct labor 42,000
Factory rent 8,000
Factory utilities 7,000
Indirect materials 4,000
Indirect labor 6,000
Selling expenses 5,000
Administrative expenses 12,000
Instructions
a. Prepare a schedule showing the amount of direct materials used in production during the year.
b. Compute the amount of manufacturing overhead incurred during the year.
c. Prepare a schedule of Cost of Goods Manufactured for Reser Company for the year ended December 31,
2008 in good form.
d. Prepare the Cost of Goods Sold section of the Income Statement for Reser Company for the year ended
December 31, 2008 in good form.
Solution
a. Raw materials inventory, beginning $ 8,000
Raw materials available for use 101,000
Less: Raw materials inventory, ending 7,000
Direct materials used $ 94,000
b. Manufacturing overhead:
Factory rent $ 8,000
Factory utilities 7,000
Indirect labor 6,000
Total manufacturing overhead $25,000
c. Reser Company
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2008
Work in processing, beginning $ 15,000
Direct materials
Raw materials inventory, beginning $ 8,000
Raw materials available for use 101,000
Less: Raw materials inventory, ending 7,000
Direct materials used $94,000
Direct labor 42,000
Manufacturing overhead 25,000
Total manufacturing costs 161,000
Total cost of work in process 176,000
Less: Work in process, ending 13,000
Cost of goods manufactured $163,000
d. Reser Company
(Partial) Income Statement
For the Year Ended December 31, 2008
Finished goods inventory, January 1 $ 16,000
Cost of goods manufactured 163,000
Cost of goods available for sale 179,000
Finished goods inventory, December 31 10,000
Cost of goods sold $169,000
COST BEHAVIOR AND ESTIMATION
Carson Company manufactures a single product. Annual production costs incurred in the manufacturing process
are shown below for the production of 2,000 units. The Utilities and Maintenance are mixed costs. The fixed
portions of these costs are $200 and $400, respectively.
Costs Incurred
Production in Units 2,000 4,000
Production Costs
a. Direct Materials $ 4,000 ?
b. Direct Labor 16,000 ?
c. Utilities 1,000 ?
d. Rent 3,000 ?
e. Indirect Labor 4,600 ?
f. Supervisory Salaries 1,500 ?
g. Maintenance 900 ?
h. Depreciation 2,500 ?
Instructions
Calculate the expected costs to be incurred when production is 4,000 units. Use your knowledge of cost behavior
to determine which of the other costs are fixed or variable.
Solution
Costs Incurred
Production in Units 2,000 4,000
Production Costs
a. Direct Materials $ 4,000 $ 8,000
b. Direct Labor 16,000 32,000
c. Utilities 1,000 1,800
d. Rent 3,000 3,000
e. Indirect Labor 4,600 9,200
f. Supervisory Salaries 1,500 1,500
g. Maintenance 900 1,400
h. Depreciation 2,500 2,500
a. Variable $4,000 ÷ 2,000 = $2.00 per unit; 4,000 × $2.00 = $8,000

b. Variable $16,000 ÷ 2,000 = $8.00 per unit; 4,000 × $8.00 = $32,000
c. Mixed $1,000 – $200 = $800; $800 ÷ 2,000 = $.40 per unit of variable costs;
4,000 × $.40 = $1,600 + $200 (fixed) = $1,800
d. Fixed $3,000
e. Variable $4,600 ÷ 2,000 = $2.30 per unit; 4,000 × $2.30 = $9,200
f. Fixed $1,500
g. Mixed $900 – $400 = $500 variable portion; $500 ÷ 2,000 = $.25
4,000 × $.25 = $1,000 + $400 (fixed portion) = $1,400
h. Fixed $2,500
Jim Wright is considering opening a Kwik Oil Change Center. He estimates that the following costs will be
incurred during his first year of operations: Rent $6,000, Depreciation on equipment $7,000, Wages $16,400,
Motor oil $1.80 per quart. He estimates that each oil change will require 5 quarts of oil. Oil filters will cost $3.00
each. He must also pay The Kwik Corporation a franchise fee of $1.40 per oil change, since he will operate the
business as a franchise. In addition, utility costs are expected to behave in relation to the number of oil changes
as follows:
Number of Oil Changes Utility Costs
4,000 $ 6,000
6,000 $ 7,300
9,000 $ 9,600
12,000 $12,600
19,000 $15,000
Mr. Wright anticipates that he can provide the oil change service with a filter at $20.00 each.
Instructions
(a) Using the high-low method, determine variable costs per unit and total fixed costs.
(b) Determine the break-even point in number of oil changes and sales dollars.
(c) Without regard to your answers in parts (a) and (b), determine the oil changes required to earn net income
of $20,000, assuming fixed costs are $32,000 and the contribution margin per unit is $8.
Solution
(a) Separation of mixed costs:
($15,000 – $6,000) $9,000
Change in cost/Change in quantity: ————————— = ——— = $.60 per oil change
(19,000 – 4,000) 15,000
Variable costs: Fixed costs:
Oil (5 quarts × $1.80) $9.00 Rent $ 6,000
Filter 3.00 Depreciation 7,000
Franchise fee 1.40 Wages 16,400
Utility costs (variable) .60 Utility costs 3,600*
Total variable $14.00 Total $33,000
*$6,000 – (4,000 × .60) = $3,600
(b) (1) Break-even oil changes in units:

Fixed costs $33,000
————————————– = ———— = 5,500 oil changes
Contribution margin per unit $6.00*
(2) Break-even sales in dollars:

Fixed costs $33,000
——————————— = ———— = $110,000
Contribution margin ratio .30*
*Selling price per unit (a) $20.00

Variable cost per unit 14.00
Contribution margin per unit (b) $ 6.00
Contribution margin ratio (b) ÷ (a) 30%
(c) Fixed costs + Net income $32,000 + $20,000

————————————- = ————————— = 6,500 oil changes
Contribution margin per unit $8
Variable VS Absorption Costing
Tanner Company developed the following unit information for January, 2008, its first month of operations:
Per Unit Total Costs
Sales price $20
Variable costs
Direct materials 5
Direct labor 3
Variable manufacturing overhead 4
Selling and administrative expenses 2
Fixed selling and administrative expenses $22,000
Fixed manufacturing overhead 36,000
During January, 12,000 units were produced and 9,000 units were sold.
Instructions
(a) Prepare an income statement under the variable costing approach using the CVP format.
(b) What would be the net income (loss) if the absorption cost approach had been used? Explain any income
difference between absorption and variable costing.
a
Solution
(a) TANNER COMPANY
Income Statement
For the Month Ended January 31, 2008
(Variable costing)
———————————————————————————————————————————
Sales (9,000 units × $20) ................................................................... $180,000
Variable expenses
Inventory, January 1 .................................................................... $ -0-
Variable manufacturing costs (12,000 units × $12) ...................... 144,000
Cost of goods available for sale ................................................... 144,000
Inventory, January 31 (3,000 units × $12) .................................... 36,000
Variable cost of goods sold .......................................................... 108,000
Variable selling and administrative expenses (9,000 × 2) ............ 18,000
Total variable expenses ......................................................... 126,000
Contribution margin ........................................................................... 54,000
Fixed expenses
Manufacturing overhead .............................................................. 36,000
Selling and administrative ............................................................ 22,000
Total fixed expenses .............................................................. 58,000
Loss from operations ......................................................................... $ (4,000)
(b) If absorption costing had been used, Tanner would report income from operations of $5,000. Under
absorption costing, fixed manufacturing overhead of $9,000* would be allocated as a product cost and would
be part of the value of the finished goods inventory on the balance sheet. Therefore, income under
absorption costing would be $9,000 greater than the $4,000 loss under variable costing.
*$36,000 ÷ 12,000 = $3 unit fixed manufacturing overhead
Ending inventory = 3,000 units × $3 = $9,000
Dolan Company developed the following information for 2008:

Selling and Administrative Expenses
Variable $30,000
Fixed $50,000
Units in beginning inventory -0-
Units sold 20,000
Direct materials used $75,000
Direct labor $95,000
Units produced 25,000
Manufacturing overhead
Variable $40,000
Fixed $90,000
Instructions
Answer the following questions.
(a) What would be the amount of the cost of goods sold under the absorption costing approach?
(b) What would be the cost of the ending inventory under the variable costing approach?
(c) Which approach would show the greater income for 2008 and by how much?
Solution
Absorption Costing Variable Costing
Direct materials .............................................................. $ 75,000 $ 75,000
Direct labor ..................................................................... 95,000 95,000
Variable manufacturing overhead ................................... 40,000 40,000
Fixed manufacturing overhead ....................................... 90,000 —
Total manufacturing costs incurred ................................. $300,000 $210,000
Production in units .......................................................... 25,000 25,000

Production unit cost ........................................................ $12 $8.40
(a) Cost of goods sold under the absorption costing approach would be $240,000
(20,000 units × $12).
(b) Cost of ending inventory under the variable costing approach would be $42,000
(5,000 units × $8.40).
(c) Absorption costing income in 2008 would be greater by $18,000 (5,000 units × $3.60).
BUDGETING
The beginning cash balance is $20,000. Sales are forecasted at $800,000 of which 80% will be on credit. 70%
of credit sales are expected to be collected in the year of sale. Cash expenditures for the year are forecasted at
$500,000. Accounts receivable from previous accounting periods totaling $12,000 will be collected in the current
year. The company is required to make a $20,000 loan payment and an annual interest payment on the last day
of the year. The loan balance as of the beginning of the year is $120,000, and the annual interest rate is 10%.
Instructions
How much will be reported as 'cash' on the budgeted balance sheet?
Solution
Cash collections:
Accounts receivable collected $ 12,000
Cash sales: 20% × $800,000 160,000
Credit sales: (80% × $800,000) × 70% 448,000
Cash expenditures (500,000)
Loan payment (20,000)
Interest payment (10% × $120,000) (12,000)
Net increase in cash 88,000
Add: beginning cash balance 20,000
Ending cash balance $108,000
The City National Bank has asked Mackey, Inc. for a budgeted balance sheet for the year ended December 31,
2008. The following information is available:
1. The cash budget shows an expected cash balance of $75,000 at December 31, 2008.
2. The 2008 sales budget shows total annual sales of $900,000. All sales are made on account and accounts
receivable at December 31, 2008 are expected to be 10% of annual sales.
3. The merchandise purchases budget shows budgeted cost of goods sold for 2008 of $600,000 and ending
merchandise inventory of $105,000. 20% of the ending inventory is expected to have not yet been paid at
December 31, 2008.
4. The December 31, 2007 balance sheet includes the following balances: Equipment $294,000, Accumulated
Depreciation $120,000, Common Stock $270,000, and Retained Earnings $48,000.
5. The budgeted income statement for 2008 includes the following: depreciation on equipment $15,000, federal
income taxes $24,000, and net income $66,000. The income taxes will not be paid until 2009.
6. In 2008, management does not expect to purchase additional equipment or to declare any dividends. It does
expect to pay all operating expenses, other than depreciation, in cash.
Instructions
Prepare an unclassified budgeted balance sheet at December 31, 2008.
Solution
MACKEY, INC.
Budgeted Balance Sheet
December 31, 2008
Assets
Cash ..................................................................................................... $ 75,000
Accounts receivable ............................................................................. 90,000
Merchandise inventory.......................................................................... 105,000
Equipment ............................................................................................ $294,000
Less: Accumulated depreciation ($120,000 + $15,000) ........................ 135,000 159,000
Total assets ................................................................................... $429,000
Liabilities and Stockholders' Equity
Accounts payable ................................................................................. $ 21,000
Income taxes payable ........................................................................... 24,000
Common stock ..................................................................................... 270,000
Retained earnings ................................................................................ 114,000
Total liabilities and stockholders' equity ......................................... $429,000
The Northeast Regional Division of Hight Wholesale Corporation has been requested to prepare a quarterly
budgeted income statement for 2009. The regional manager expects that sales in the first quarter of 2009 will
increase by 10% over the same quarter of the preceding year and will then increase by 5% for each succeeding
quarter in 2009.
The corporate head office has requested that the regional manager maintain an inventory in dollars equal to 25%
of the next quarter's sales. Quarterly purchases average 55% of quarterly sales. Budgeted ending inventory on
December 31, 2008 is $132,000. Quarterly salaries are $15,000 plus 5% of sales. All salaries are classified as
sales salaries. Other quarterly expenses are estimated to be as follows:
Rent expense $18,000
Depreciation on office equipment $9,000
Utilities expense $2,700
Miscellaneous expenses 2% of sales
The income statement for the first quarter of 2008 was as follows:
Income Statement
For the Quarter Ended March 31, 2008
Sales .................................................................................................... $480,000
Cost of goods sold ................................................................................ 264,000
Gross profit ........................................................................................... 216,000
Operating expenses
Sales salaries ................................................................................ $39,000
Rent expense ................................................................................ 18,000
Depreciation .................................................................................. 9,000
Utilities .......................................................................................... 2,700
Miscellaneous ............................................................................... 9,600
Total operating expenses ....................................................... 78,300
Net income ........................................................................................... $137,700
Instructions
Prepare a budgeted quarterly income statement in tabular form for the first quarter of 2009. (Show computations.)
Solution
HIGHT WHOLESALE CORPORATION
Northeast Regional Division
Budgeted Income Statement
Sales (1) ............................................................................................................. $528,000
Cost of goods sold (2) ........................................................................................ 283,800
Gross profit ......................................................................................................... 244,200
Operating expenses
Sales salaries (3)......................................................................................... 41,400
Rent expense .............................................................................................. 18,000
Depreciation ................................................................................................ 9,000
Utilities ........................................................................................................ 2,700
Miscellaneous (4) ........................................................................................ 10,560
Total operating expenses ..................................................................... 81,660
Net income ......................................................................................................... $162,540
(1) Sales Qtr. 1 $480,000 × 110% = $528,000

(2) Cost of goods sold
Beginning inventory $132,000
Purchases ($528,000 × 55% = $290,400) 290,400
Cost of goods available 422,400
Ending inventory ($528,000 × 105% = $554,400 × 25% = $138,600) 138,600
Cost of goods sold $283,800
(3) Sales salaries: $15,000 + ($528,000 × .05) = $41,400.
(4) Miscellaneous expenses: $528,000 × .02 = $10,560.
Kelso Company manufactures two products, (1) Regular and (2) Deluxe. The budgeted units to be produced are
as follows:
Units of Product
2008 Regular Deluxe Total
July 10,000 15,000 25,000
August 6,000 10,000 16,000
September 9,000 14,000 23,000
October 8,000 12,000 20,000
It takes 3 pounds of direct materials to produce the Regular product and 5 pounds of direct materials to produce
the Deluxe product. It is the company's policy to maintain an inventory of direct materials on hand at the end of
each month equal to 30% of the next month's production needs for the Regular product and 20% of the next
month's production needs for the Deluxe product. Direct materials inventory on hand at June 30 were 9,000
pounds for the Regular product and 15,000 pounds for the Deluxe product. The cost per pound of materials is
$5 Regular and $7 Deluxe.
Instructions
Prepare separate direct materials budgets for each product for the third quarter of 2008.
Solution
KELSO COMPANY
Direct Materials Budget—Regular
For the Quarter Ended September 30, 2008
July August September Total

Units to be produced 10,000 6,000 9,000
Direct materials per unit × 3 × 3 × 3
Total pounds needed for production 30,000 18,000 27,000
Add: Desired ending direct materials (pounds) 5,400 8,100 7,200*
Total materials required 35,400 26,100 34,200
Less: Beginning direct materials (pounds) 9,000 5,400 8,100
Direct materials purchases 26,400 20,700 26,100
Cost per pound × $5 × $5 × $5
Total cost of direct materials purchases $132,000 $103,500 $130,500 $366,000
*30% × (8,000 × 3)
KELSO COMPANY
Direct Materials Budget—Deluxe
For the Quarter Ended September 30, 2008
July August September Total
Add: Desired ending direct materials (pounds) 10,000 14,000 12,000*
Total cost of direct materials purchases $490,000 $378,000 $476,000 $1,344,000
*20% × (12,000 × 5)
Yount Company has budgeted the following unit sales:

2009 Units
January 10,000
February 8,000
March 9,000
April 11,000
May 15,000
The finished goods units on hand on December 31, 2008, was 2,000 units. Each unit requires 2 pounds of raw
materials that are estimated to cost an average of $4 per pound. It is the company's policy to maintain a finished
goods inventory at the end of each month equal to 10% of next month's anticipated sales. They also have a
policy of maintaining a raw materials inventory at the end of each month equal to 20% of the pounds needed for
the following month's production. There were 3,920 pounds of raw materials on hand at December 31, 2008.
Instructions
For the first quarter of 2009, prepare (1) a production budget and (2) a direct materials budget.
Solution
(1) YOUNT COMPANY
Production Budget
January February March Total
Expected unit sales 10,000 8,000 9,000
Desired ending finished goods units 800 900 1,100*
Total required units 10,800 8,900 10,100
Less: Beginning finished goods units 1,000 800 900
Required production units 9,800 8,100 9,200 27,100
*April units: 11,000 × 10%.
(2) YOUNT COMPANY

Direct Materials Budget
January February March Total
Desired ending direct materials (pounds) 3,240 3,680 4,560**
Total cost of direct materials purchases $75,680 $66,560 $77,120 $219,360
**April units: 11,400 × 2 = 22,800 × 20%.
Webster Company has the following sales budget.
January $200,000
February $240,000
March $300,000
April $360,000
Cost of sales is 70% of sales. Sales are collected 40% in the month of sale
and 60% in the following month. Webster keeps inventory equal to double the
coming month's budgeted sales requirements. It pays for purchases 80% in the
month of purchase and 20% in the month after purchase. Inventory at the
beginning of January is $190,000. Webster has monthly fixed costs of $30,000
including $6,000 depreciation. Fixed costs requiring cash are paid as
incurred.
REQUIRED
a. Compute budgeted cash receipts in March.
b. Compute budgeted accounts receivable at the end of March.
c. Compute budgeted inventory at the end of February.
d. Compute budgeted purchases in February.
e. March purchases are $290,000. Compute budgeted cash payments in March to

suppliers of goods.
f. Compute budgeted accounts payable for goods at the end of February.
g. Cash at the end of February is $45,000. Cash disbursements are not required
for anything other than payments to suppliers and fixed costs. Compute the
budgeted cash balance at the end of March.
SOLUTION:
a. March receipts: $264,000 [($240,000 x 60%) + ($300,000 x 40%)]
b. Receivables at end of March: $180,000 [$300,000 x (100% - 40%)]
c. Inventory at end of February: $420,000 ($300,000 x 70% x 2)
d. February purchases: $252,000 [($240,000 x 70%) + ($300,000 x 2 x 70%)

- ($240,000 x 2 x 70%)]
e. March payments: $282,400 [(252,000 x 20%) + ($290,000 x 80%)]
f. AP at end of February: $50,400 ($252,000 x 20%)
g. Cash at end of March: $2,600 ($25,000 + $264,000 - $282,400 - $24,000)
Jenner Company developed its annual manufacturing overhead budget for its master budget for 2008 as follows:
Expected annual operating capacity 120,000 Direct Labor Hours
Variable overhead costs
Factory supplies 30,000
Total variable 540,000
Fixed overhead costs
Depreciation 180,000
Supervision 120,000
Property taxes 96,000
Total fixed 396,000
Total costs $936,000
The relevant range for monthly activity is expected to be between 8,000 and 12,000 direct labor hours.
Instructions
Prepare a flexible budget for a monthly activity level of 8,000 and 9,000 direct labor hours.
Solution
JENNER COMPANY
Monthly Flexible Manufacturing Overhead Budget
Activity level
Direct labor hours 8,000 9,000
Variable costs
Indirect labor $28,000 $31,500
Indirect materials 6,000 6,750
Factory supplies 2,000 2,250
Total variable 36,000 40,500
Fixed costs
Depreciation 15,000 15,000
Supervision 10,000 10,000
Property taxes 8,000 8,000
Total fixed 33,000 33,000
Total costs $69,000 $73,500
RESPONSIBILITY ACCOUNTING; STANDARD COSTING AND VARINCE ANALYSIS
Fagan Company uses a flexible budget for manufacturing overhead based on machine hours. Variable
manufacturing overhead costs per machine hour are as follows:
Indirect labor $5.00
Indirect materials 2.50
Maintenance .50
Utilities .30
Fixed overhead costs per month are:
Supervision $600
Insurance 200
Property taxes 300
Depreciation 900
The company believes it will normally operate in a range of 2,000 to 4,000 machine hours per month. During
the month of August, 2008, the company incurs the following manufacturing overhead costs:
Maintenance 1,400
Utilities 950
Supervision 720
Insurance 200
Property taxes 300
Depreciation 930
Instructions
Prepare a flexible budget report, assuming that the company used 3,000 machine hours during August.
Solution
FAGAN COMPANY
Manufacturing Overhead Budget Report (Flexible)
For the Month Ended August 31, 2008
Difference
Budget at Actual at Favorable F
3,000 hrs. 3,000 hrs. Unfavorable U
Variable costs
Indirect labor $15,000 $14,000 $1,000 F
Indirect materials 7,500 8,100 600 U
Maintenance 1,500 1,400 100 F
Utilities 900 950 50 U
Total variable 24,900 24,450 450 F
Fixed Costs
Supervision 600 720 120 U
Insurance 200 200 —
Property taxes 300 300 —
Depreciation 900 930 30 U
Total fixed 2,000 2,150 150 U
Total costs $26,900 $26,600 $ 300 F
Data concerning manufacturing overhead for Friendly Company are presented below. The Mixing Department
is a cost center.
An analysis of the overhead costs reveals that all variable costs are controllable by the manager of the Mixing
Department and that 50% of supervisory costs are controllable at the department level.
The flexible budget formula and the cost and activity for the months of July and August are as follows:
Flexible Budget Per

Direct Labor Hour Actual Costs and Activity
July August
Overhead costs
Variable
Indirect materials $3.50 $ 20,500 $ 25,100
Indirect labor 6.00 39,500 40,700
Factory supplies 1.00 7,600 8,200
Fixed
Depreciation $20,000 15,000 15,000
Supervision 25,000 23,000 26,000
Property taxes 10,000 12,000 12,000
Total costs $117,600 $127,000
Instructions
(a) Prepare the responsibility reports for the Mixing Department for each month.
(b) Comment on the manager's performance in controlling costs during the two month period.
Solution
(a) FRIENDLY COMPANY
Mixing Department
Manufacturing Overhead Cost Responsibility Report
For the Months of July and August
July August
Controllable Cost Budget Actual Difference Budget Actual Difference
Indirect materials 21,000 20,500 500 F 24,500 25,100 600 U
Indirect labor 36,000 39,500 3,500 U 42,000 40,700 1,300 F
Factory supplies 6,000 7,600 1,600 U 7,000 8,200 1,200 U
Supervision 12,500 11,500 1,000 F 12,500 13,000 500 U
Total costs 75,500 79,100 3,600 U 86,000 87,000 1,000 U
(b) The manager did a better job of controlling costs in August ($1,000 U) than in July ($3,600 U).
Presented below is a flexible manufacturing budget for Waner Company, which manufactures fine timepieces:
Activity Index:
Standard direct labor hours 2,000 3,200 3,600 4,000
Variable costs
Indirect materials $ 4,000 $ 6,400 $ 7,200 $ 8,000
Indirect labor 2,300 3,680 4,140 4,600
Utilities 5,200 8,320 9,360 10,400
Total variable 11,500 18,400 20,700 23,000
Fixed costs
Supervisory salaries 1,000 1,000 1,000 1,000
Rent 3,000 3,000 3,000 3,000
Total fixed 4,000 4,000 4,000 4,000
Total costs $15,500 $22,400 $24,700 $27,000
The company applies the overhead on the basis of direct labor hours at $7.00 per direct labor hour and the
standard hours per timepiece is 1/2 hour each. The company's actual production was 5,800 timepieces with
2,900 actual hours of direct labor. Actual overhead was $21,200.
Instructions
Compute the controllable and volume overhead variances.
Solution
Computation of variances:
Actual overhead – Budgeted overhead = Controllable overhead variance
$21,200 – [(5,800 × 1/2 × $5.75) + $4,000] = $525 Unfavorable
Overhead volume variance:

(Normal hours – Standard hours) × Fixed overhead rate
(3,200 – 2,900) × ($4,000  3,200) = $375 Unfavorable
American Sporting Goods Company manufactures aluminum baseball bats that it sells to university athletic
departments. It has developed the following per unit standard costs for 2009 for each baseball bat:
Manufacturing
Direct Materials Direct Labor Overhead
Standard Quantity 2 Pounds (Aluminum) 1/2 hour 1/2 hour
Standard Price $4.00 $10.00 $6.00
Unit Standard Cost $8.00 $5.00 $3.00
In 2009, the company planned to produce 80,000 baseball bats at a level of 40,000 hours of direct labor.
Actual results for 2009 are presented below:

1. Direct materials purchases were 164,000 pounds of aluminum which cost $688,800.
2. Direct materials used were 145,000 pounds of aluminum.
3. Direct labor costs were $379,270 for 39,100 direct labor hours actually worked.
4. Total manufacturing overhead was $235,000.
5. Actual production was 76,000 baseball bats.
Instructions
Compute the following variances:
1. Direct materials price.
2. Direct materials quantity.
3. Direct labor price.
4. Direct labor quantity.
5. Total overhead variance.
Solution
1. Direct materials price variance = $32,800 Unfavorable.
(AQ × AP) – (AQ × SP)
(164,000 × $4.20) – (164,000 × $4.00) = $688,800 – $656,000 = $32,800
2. Direct materials quantity variance = $28,000 Favorable.
(AQ × SP) – (SQ × SP)
(145,000 × $4.00) – (152,000* × $4.00) = $580,000 – $608,000 = $28,000
*SQ = 76,000 × 2 pounds = 152,000 pounds
3. Direct labor price variance = $11,730 Favorable.
(AH × AR) – (AH × SR)
(39,100 × $9.70) – (39,100 × $10.00) = $379,270 – $391,000 = $11,730
4. Direct labor quantity variance = $11,000 Unfavorable.
(AH × SR) – (SH × SR)
(39,100 × $10.00) – (38,000* × $10.00) = $391,000 – $380,000 = $11,000
*SH = 76,000 × 1/2 hour = 38,000 hours
5. Actual overhead – Overhead applied = Total overhead variance.
$235,000 – $228,000* = $7,000 Unfavorable
*SH = 38,000 × $6.00 = $228,000
Feeney Company developed the following standard costs for its product for 2009:
FEENEY COMPANY
Standard Cost Card
Cost Elements Standard Quantity × Standard Price = Standard Cost

Direct materials 4 pounds $ 5 $20
Direct labor 2 hours 10 20
Variable overhead 2 hours 4 8
Fixed overhead 2 hours 2 4
$52
The company expected to work at the 60,000 direct labor hours level of activity and produce 30,000 units of
product.
Actual results for 2009 were as follows:

 28,400 units of product were actually produced.
 Direct labor costs were $546,000 for 56,000 direct labor hours actually worked.
 Actual direct materials purchased and used during the year cost $554,400 for 115,500 pounds.
 Total actual manufacturing overhead costs were $340,000.
Instructions
Compute the following variances for Feeney Company for 2009 and indicate whether the variance is favorable
or unfavorable.
1. Direct materials price variance.
2. Direct materials quantity variance.
3. Direct labor price variance.
4. Direct labor quantity variance.
5. Overhead controllable variance.
6. Overhead volume variance.
Solution
1. Direct materials price variance = $23,100 favorable.
(AQ × AP) – (AQ × SP) = Materials price variance
(115,500 × $4.80) – (115,500 × $5) = $554,400 – $577,500 = $23,100 favorable
2. Direct materials quantity variance = $9,500 unfavorable.

(AQ × SP) – (SQ × SP) = Materials quantity variance
(115,500 × $5) – (113,600 × $5) = $577,500 – $568,000 = $9,500 unfavorable
SQ = 28,400 products × 4 lbs = 113,600 lbs.
3. Direct labor price variance = $14,000 favorable.

(AH × AR) – (AH × SR) = Labor price variance
(56,000 × $9.75) – (56,000 × $10) = $546,000 – $560,000 = $14,000 favorable
4. Direct labor quantity variance = $8,000 favorable.

(AH × SR) – (SH × SR) = Labor quantity variance
(56,000 × $10) – (56,800 × $10) = $560,000 – $568,000 = $8,000 favorable
SH = 28,400 units × 2 hrs = 56,800 direct labor hours
5. Overhead controllable variance = $7,200 favorable.

Actual overhead – Budgeted overhead for = Controllable overhead variance
standard hours allowed
$340,000 – $347,200 = $7,200 favorable
Budgeted overhead for 56,800 direct labor hours allowed.

Variable overhead (56,800 × $4) = $227,200
Fixed overhead = 120,000
$347,200
6. Overhead volume variance = $6,400 unfavorable.

Volume variance: (60,000 – 56,800) × $2/SH = $6,400 unfavorable
Jane Short manufactures and sells a nutrition drink for children. She wants to develop a standard cost per
gallon. The following are required for production of a 100 gallon batch:
1,960 ounces of lime Kool-Drink at $.12 per ounce
40 pounds of granulated sugar at $.60 per pound
63 kiwi fruit at $.50 each
100 protein tablets at $.90 each
4,000 ounces of water at $.003 per ounce
Jane estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and 10% of the kiwis cannot
be used.
Instructions
Compute the standard cost of the ingredients for one gallon of the nutrition drink.
Solution
Ingredient Amount Per Gallon Standard Waste
Lime Kool-Drink 19.6 oz. 2%
Sugar .40 lb. 20%
Kiwis .63 10%
Protein Tablets 1 0%
Water 40 oz. 0%
Standard Usage Standard Price Standard Cost

Lime Kool-Drink (a) 20.00 oz. $ .12 $2.40
Sugar (b) .50 lb. .60 .30
Kiwis (c) .70 .50 .35
Protein Tablets 1 .90 .90
Water 40 oz. .003 .12
Standard Cost per Gallon $4.07
(a) .98X = 19.6 ounces X = 20.00

(b) .80X = .40 pounds X= .50
(c) .90X = .63 kiwis X= .70
Deines, Inc. manufactures one product called tybos. The company uses a standard cost system and sells each
tybo for $8. At the start of monthly production, Deines estimated 8,000 tybos would be produced in March. Deines
has established the following material and labor standards to produce one tybo:
Standard Quantity Standard Price

Direct materials 2.5 pounds $3 per pound
Direct labor 0.6 hours $10 per hour
During March 2009, the following activity was recorded by the company relating to the production of tybos:
1. The company produced 7,500 units during the month.

2. A total of 20,000 pounds of materials were purchased at a cost of $55,000.
3. A total of 20,000 pounds of materials were used in production.
4. 4,000 hours of labor were incurred during the month at a total wage cost of $44,000.
Instructions
Calculate the following variances for March for Deines, Inc.
(a) Materials price variance
(b) Materials quantity variance
(c) Labor price variance
(d) Labor quantity variance
Solution
(a) Materials price variance
= (Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price)
= (20,000 × $2.75) – (20,000 × $3) = $5,000 favorable
(b) Materials quantity variance

= (Actual quantity used × Standard price) – (Standard quantity × Standard price)
= (20,000 × $3) – [(7,500 × 2.5) × $3] = $3,750 unfavorable
(c) Labor price variance

= (Actual hours x Actual rate) – (Actual hours × Standard rate)
= (4,000 × $11) – (4,000 × $10) = $4,000 unfavorable
(d) Labor quantity variance = (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (4,000 × $10) – [(0.6 × 7,500) × $10] = $5,000 favorable
The data below relate to a product of Acme Company.
Standard costs:
Materials, 5 yards at $3 per pound $15 per unit
Labor, 3 hours at $14 per hour $42 per unit
Variable overhead at $10 per labor hour $30 per unit
Budgeted fixed production costs $175,000 per year
Budgeted production for the year 7,700 units
Actual results were:

Production 6,300 units
Material purchases, 31,700 yards $ 80,890
Labor, 17,660 hours $252,330
Variable overhead incurred $ 178,300
Fixed overhead incurred $172,200
Material used in production 31,600 yards
For each variance, determine the amount and circle the correct direction,
F = favorable, U = unfavorable
a. Material price variance. F U
b. Material use variance. F U
c. Direct labor rate variance. F U
d. Direct labor efficiency variance. F U
e. Variable overhead budget variance. F U
f. Variable overhead efficiency variance. F U
SOLUTION:
a. MPV $14,210 F $80,890 - ($3 x 31,700)
b. MUV $ 300 U ($3 x 31,600) - ($15 x 6,300)
c. DLRV $ 5,090 U $252,330 - ($14 x 17,660)
d. DLEV $17,360 F ($14 x 17,660) - ($42 x 6,300)
e. VOHBV $ 1,700 U $178,300 - ($10 x 17,660)
f. VOHEV $11,160 U ($9 x 17,660) - ($27 x 6,300)
DECISION-MAKING FRAMEWORK/ SHORT-TERM NON-ROUTINE
Wimmer Division’s operating results include:

 Controllable margin, $150,000
 Sales revenue, $1,200,000
 Operating assets, $500,000
Wimmer is considering a project with sales of $120,000, expenses of $84,000, and an investment of $180,000.
Wimmer’s required rate of return is 15%.
Instructions
Determine whether Wimmer should accept this project.
Solution
Current ROI = $150,000 ÷ $500,000 = 30%
ROI of new project = $36,000 ÷ $180,000 = 20%
New ROI with project = [$150,000 + $36,000] ÷ [$500,000 + $180,000] = 27.4%
While ROI decreases, that does not make this a bad investment, since many projects cause total ROI to fall even
though they increase value of the division. The determination is based on how the ROI of the project compares
to the required rate of return. The company is not willing to accept any projects with an investment less than
15%, so the 20% project should be accepted.
An investment center manager is considering three possible investments. The company’s required return is 10%.
The required asset investment, controllable margins, and the ROIs of each investment are as follows:
Project Average Investment Controllable Margin ROI
Bud $160,000 $32,000 20.0%
Wise 140,000 16,000 11.4%
Er 220,000 66,000 30%
The investment center is currently generating an ROI of 25% based on $1,200,000 in operating assets and a
controllable margin of $300,000.
Instructions
If the manager can select only one project, determine which one is the best choice to increase the investment
center's ROI. Compute how much the investment center’s ROI will be if the manager selects your
recommendation.
Solution
Er is the best choice because it increases the ROI (30% is greater than 25%).
Project New ROI
Bud ($300,000 + $32,000) ÷ ($1,200,000 + $160,000) = 24.4%
Wise ($300,000 + $16,000) ÷ ($1,200,000 + $140,000) = 23.6%
Er ($300,000 + $66,000) ÷ ($1,200,000 + $220,000) = 25.8%
McIntosh Enterprises produces giant stuffed bears. Each bear consists of $12 of variable costs and $9 of fixed
costs and sells for $45. A wholesaler offers to buy 8,000 units at $14 each, of which McIntosh has the capacity
to produce. McIntosh will incur extra shipping costs of $1.25 per bear.
Instructions
Determine the incremental income or loss that McIntosh Enterprises would realize by accepting the special order.
Solution
Incremental revenue (8,000 × $14) $112,000
Incremental variable costs ($12 × 8,000) (96,000)
Incremental shipping costs ($1.25 × 8,000) (10,000)
Incremental profit if special order accepted $ 6,000
Signa Corporation currently manufactures 3,000 staplers annually for its main product. The costs per stapler are
as follows:
Direct materials $ 3.00
Direct labor 8.00
Variable overhead 4.00
Fixed overhead 7.00
Total $22.00
Darsel Company has contacted Signa with an offer to sell it 3,000 staplers for $18.00 each. $5 of the fixed
overhead per unit is unavoidable.
Instructions
Prepare an incremental analysis for the make-or-buy decision.
Solution
Incremental cost to buy $(54,000)
Incremental savings on direct materials + 9,000
Incremental savings on direct labor + 24,000
Incremental savings on variable MOH + 12,000
Incremental savings on fixed MOH + 6,000
Incremental net cost to buy $ (3,000)
Kalamoo Company has a machine that affixes labels to bottles. The machine has a book value of $60,000 and
a remaining useful life of 3 years and no salvage value. A new, more efficient machine is available at a cost of
$225,000 that will have a 5-year useful life with no salvage value. The new machine will lower annual variable
production costs from $400,000 to $310,000.
Instructions
Prepare an analysis showing whether the old machine should be retained or replaced.
Solution
Retain Equipment Replace Equipment Net Income Change
Variable manufacturing costs $1,200,000 $930,000 $270,000*
New machine cost (225,000)
Net savings over 3 years $ 45,000
*For 3 years of remaining life
Crisp has 4 product lines: sour cream, ice cream, yogurt, and butter. The allocated fixed costs are based on units
sold and are unavoidable. Demand of individual products is not affected by changes in other product lines. 40%
of the fixed costs are direct, and the other 60% are allocated. Results of June follow:
Sour Cream Ice Cream Yogurt Butter Total
Units sold 2,000 500 400 200 3,100
Revenue $10,000 $20,000 $10,000 $20,000 $60,000
Variable departmental costs 6,000 13,000 4,200 4,800 28,000
Fixed costs 5,000 2,000 3,000 7,000 17,000
Net income (loss) $ (1,000) $ 5,000 $ 2,800 $ 8,200 $15,000
Instructions
Prepare an incremental analysis of the effect of dropping the sour cream product line.
Solution
Incremental revenue $(10,000)
Incremental variable cost savings + 6,000
Incremental fixed cost savings ($5,000 x .40) + 2,000
Incremental decrease in profits if dropped $ (2,000)
Gladiator Company provided the following information concerning two products:

Contribution margin per unit—Product 12 $23
Contribution margin per unit—Product 43 $15
Machine hours required for one unit—Product 12 2.5 hours
Machine hours required for one unit—Product 43 1.5 hours
Instructions
Compute the contribution margin per unit of limited resource for each product. Which product should Gladiator
tells its sales personnel to ‘push’ to customers?
Solution
Product 12: $23 ÷ 2.5 hours = $9.20
Product 43: $15 ÷ 1.5 hours = $10
Therefore, sales personnel should push Product 43.
Dingle Company produced and sold 50,000 units of product and is operating at 70% of plant capacity. Unit
information about its product is as follows:
Sales Price $70
Variable manufacturing cost $45
Fixed manufacturing cost ($500,000 ÷ 50,000) 10 55
Profit per unit $15
The company received a proposal from a foreign company to buy 15,000 units of Dingle Company's product for
$50 per unit. This is a one-time only order and acceptance of this proposal will not affect the company's regular
sales. The president of Dingle Company is reluctant to accept the proposal because he is concerned that the
company will lose money on the special order.
Instructions
Prepare a schedule reflecting an incremental analysis of this proposal and indicate the effect the acceptance of
this order might have on the company's income.
Solution
DINGLE COMPANY
Incremental Analysis
Proposal to buy 15,000 units at $50
Net Income
Reject Order Accept Order Increase (Decrease)
Revenues (15,000 × $50) $ -0- $750,000 $750,000
Costs (15,000 × $45) -0- (675,000) (675,000)
Net Income $ -0- $ 75,000 $ 75,000
Dingle Company would increase its income by $75,000 in accepting the special order.
Eatman Company manufactures cappuccino makers. For the first eight months of 2008, the company reported
the following operating results while operating at 80% of plant capacity:
Sales (500,000 units) $90,000,000

Cost of goods sold 54,000,000
Gross profit 36,000,000
Operating expenses 24,000,000
Net income $12,000,000
An analysis of costs and expenses reveals that variable cost of goods sold is $95 per unit and variable operating
expenses are $35 per unit.
In September, Eatman Company receives a special order for 30,000 machines at $135 each from a major coffee
shop franchise. Acceptance of the order would result in $10,000 of shipping costs but no increase in fixed
expenses.
Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should Eatman Company accept the special order? Justify your answer.
Solution
(a) Net Income
Revenues $ -0- $4,050,000 $4,050,000
Cost of Goods Sold -0- 2,850,000* (2,850,000)
Operating Expense -0- 1,060,000** (1,060,000)
Net Income $ -0- $ 140,000 $ 140,000
*Variable cost of goods sold = 30,000 × $95 = $2,850,000.

**Variable operating expenses = 30,000 × $35 = $1,050,000 + $10,000 = $1,060,000.
(b) The incremental analysis shows Eatman Company should accept the special order because incremental
revenues exceed incremental costs. This recommendation assumes that acceptance of the special order
will not affect relations with existing customers.
Unruh Company supplies schools with floor mattresses to use in physical education classes. Unruh has received
a special order from a large school district to buy 600 mats at $45 each. Acceptance of the special order will not
affect fixed costs but will result in $1,200 of shipping costs.
For the first 6 months of 2008, the company reported the following operating results while operating at 80%
capacity:
Sales (100,000 units) $7,000,000
Cost of goods sold 4,200,000
Gross profit 2,800,000
Operating expenses 2,000,000
Net income $ 800,000
Cost of goods sold was 70% variable and 30% fixed; operating expenses were 75% variable and 25% fixed.
Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should Unruh Company accept the special order? Justify your answer.
Solution
(a) Net Income
Revenues $ -0- $27,000 $27,000
Cost of Goods Sold -0- 17,640 (17,640)
Operating Expense -0- 10,200 (10,200)
Net Income $ -0- $ (840) $ (840)
Variable cost of goods sold = $4,200,000 × 70% = $2,940,000.

Variable cost of goods sold per unit = $2,940,000 ÷ 100,000 = $29.40.
Variable cost of goods sold for the special order = 600 × $29.40 = $17,640.
Variable operating expenses = $2,000,000 × 75% = $1,500,000
Variable operating expenses per unit = $1,500,000 ÷ 100,000 = $15
Variable operating expenses for the special order = 600 × $15 = $9,000 + $1,200
= $10,200
(b) The incremental analysis shows Unruh Company should not accept the special order because incremental
costs exceed incremental revenues.
Gersen, Inc. budgeted 10,000 widgets for production during 2008. Gersen has capacity to produce 12,000 units.
Fixed factory overhead is allocated to production. The following estimated costs were provided:
Direct material ($7/unit) $ 70,000
Direct labor ($15/hr. × 2 hrs./unit) 300,000
Variable manufacturing overhead ($3/unit) 30,000
Fixed factory overhead costs ($5/unit) 50,000
Total $450,000
Cost per unit = $45
Instructions
Answer each of the following independent questions:
1. Gersen received an order for 1,000 units from a new customer in a country in which Gersen has never done
business. This customer has offered $43 per widget. Should Gersen accept the order?
2. Gersen received an offer from another company to manufacture the same quality widgets for $39. Should
Gersen let someone else manufacture all 10,000 widgets and focus only on distribution?
Solution
1. Yes, Gersen can make an extra $3,000.
Incremental revenue per widget $43
Incremental cost per widget: $7 + ($15 × 2) + $3 = 40
Incremental profit per unit $3
Total incremental profit = $3 × 1,000 = $3,000
2. Yes, Gersen will save $10,000 if it buys instead of makes.

Cost to buy per widget $39
Cost to make per widget: $7 + ($15 × 2) + $3 = 40
Incremental savings per widget if purchased $ 1
Total incremental savings if purchased = $1 × 10,000 = $10,000
Ferry Company manufactured 6,000 units of a component part that is used in its product and incurred the
following costs:
Direct materials $35,000

Direct labor 15,000
Variable manufacturing overhead 10,000
Fixed manufacturing overhead 20,000
$80,000
Another company has offered to sell the same component part to the company for $12 per unit. The fixed
manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and
would not be reduced if the component part was purchased from the outside firm. If the component part is
purchased from the outside firm, Ferry Company has the opportunity to use the factory equipment to produce
another product which is estimated to have a contribution margin of $14,000.
Instructions
Prepare an incremental analysis report for Ferry Company which can serve as informational input into this make
or buy decision.
Solution
Make Buy Increase (Decrease)
Direct materials $35,000 $ -0- $ 35,000
Direct labor 15,000 -0- 15,000
Variable manufacturing overhead 10,000 -0- 10,000
Fixed manufacturing overhead 20,000 20,000 -0-
Purchase price (6,000 × $12) -0- 72,000 (72,000)
Total annual cost 80,000 92,000 (12,000)
Opportunity cost 14,000 -0- 14,000
Total cost $94,000 $92,000 $ 2,000
Income is expected to increase by $2,000 if the component part is purchased from the outside firm and the new
product is manufactured.
Moon Bicycle Company has been manufacturing its own seats for its bicycles. The company is currently
operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 60% of
direct labor cost. The direct materials and direct labor cost per unit to make the bicycle seats are $8.00 and
$9.00, respectively. Normal production is 50,000 bicycles per year.
A supplier offers to make the bicycle seats at a price of $20 each. If the bicycle company accepts this offer, all
variable manufacturing costs will be eliminated, but the $30,000 of fixed manufacturing overhead currently being
charged to the bicycle seats will have to be absorbed by other products.
Instructions
(a) Prepare the incremental analysis for the decision to make or buy the bicycle seats.
(b) Should Moon Bicycle Company buy the seats from the outside supplier? Justify your answer.
Solution
(a) Net Income
Make Buy Increase (Decrease)
Direct Materials (50,000 × $8) $ 400,000 $ -0- $ 400,000
Direct Labor (50,000 × $9) 450,000 -0- 450,000
Variable Manufacturing Costs
($450,000 × 60%) 270,000 -0- 270,000
Fixed Manufacturing Costs 30,000 30,000 -0-
Purchase Price (50,000 × $20) -0- 1,000,000 (1,000,000)
Total annual cost $1,150,000 $1,030,000 $ 120,000
(b) The seats should be purchased from the outside supplier. As indicated, the company's net income would
increase $120,000 by purchasing the seats.
United Chemical Corporation produces an oil-based chemical product which it sells to paint manufacturers. In
2008, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of
the chemical is $11.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented
below:
Direct materials $6.00
Direct labor 1.20
Variable manufacturing overhead .80
Fixed manufacturing overhead .60
Total manufacturing costs $8.60
The company is considering manufacturing the paint itself. If the company processes the chemical further and
manufactures the paint itself, the following additional costs per gallon will be incurred: Direct materials $1.70,
Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is
expected. The company can sell the paint at $15.00 per gallon.
Instructions
Determine the incremental per gallon increase in net income and the total increase in net income if the company
manufactures the paint.
Solution
Net Income
Sell Chemical Process Further Increase (Decrease)
Sales price per unit $11.00 $15.00 $4.00
Cost per unit:
Direct materials (A) 6.00 7.70 (1.70)
Direct labor (B) 1.20 1.80 (.60)
Variable manufacturing overhead (C) .80 1.30 (.50)
Fixed manufacturing overhead .60 .60 —
Total 8.60 11.40 (2.80)
Net income per unit $ 2.40 $ 3.60 $1.20
(A) $6.00 + $1.70

(B) $1.20 + $.60
(C) $.80 + $.50
Assuming the company sells all 40,000 gallons that it produces, the incremental net income would be $48,000
(40,000 gallons × $1.20).
Braum, Inc. produces milk at a total cost of $66,000. The production generates 60,000 gallons of milk which can
be sold for $1 per gallon to a pasteurization company, or the milk can be processed further into ice cream and
then sold for $2.50 per gallon. It costs $75,000 more to turn the annual milk supply into ice cream.
Instructions
If Braum processes the milk into ice cream, how much is the incremental profit or loss? Should Braum process
the milk into ice cream or sell it as is?
Solution
Incremental revenues: ($2.50 – $1.00) × 60,000 gallons = $90,000
Incremental costs: given as $75,000
Incremental profits: $90,000 – $75,000 = $15,000 profit
Braum should process into ice cream.
Franke Timber Corporation uses a machine that removes the bark from cut timber. The machine is unreliable
and results in a significant amount of downtime and excessive labor costs. The management is considering
replacing the machine with a more efficient one which will minimize downtime and excessive labor costs. Data
are presented below for the two machines:
Old Machine New Machine
Original purchase cost $340,000 $430,000
Accumulated depreciation 230,000 —
Estimated life 5 years 5 years
It is estimated that the new machine will produce annual cost savings of $95,000. The old machine can be sold
to a scrap dealer for $8,000. Both machines will have a salvage value of zero if operated for the remainder of
their useful lives.
Instructions
Determine whether the company should purchase the new machine.
Solution
Retain Replace Net Income
Equipment Equipment Increase/(Decrease)
Cost savings $ -0- $475,000 (A) $475,000
New machine cost -0- (430,000) (430,000)
Proceeds from sale of old machine $ -0- 8,000 8,000
Net incremental net income $ -0- $ 53,000 $ 53,000
(A) $95,000 × 5 = $475,000.
The company should purchase the new machine because there will be an increase in net income of $53,000.
Munroe Enterprises relies heavily on a copier machine to process its paperwork. Recently the copy clerk has not
been able to process all the necessary copies within the regular work week. Management is considering updating
the copier machine with a faster model.
Current Copier New Model
Original purchase cost $10,000 $20,000
Accumulated depreciation 8,000 —
Estimated operating costs (annual) 9,000 4,200
Useful life 5 years 5 years
If sold now, the current copier would have a salvage value of $1,000. If operated for the remainder of its useful
life, the current machine would have zero salvage value. The new machine is expected to have zero salvage
value after five years.
Instructions
Prepare an analysis to show whether the company should retain or replace the machine.
Solution
Net Income
Retain Machine Replace Machine Increase (Decrease)
Operating costs $45,000 $21,000 $24,000
New machine cost -0- 20,000 (20,000)
Salvage value -0- (1,000) 1,000
Totals $45,000 $40,000 $ 5,000
The current copier should be replaced. The incremental analysis shows that net income for the five-year period
will be $5,000 higher by replacing the current copier.
Anheiser, Inc. has three divisions: Bud, Wise, and Er. The results of May, 2008 are presented below.
Bud Wise Er Total
Units sold 3,000 5,000 2,000 10,000
Revenue $70,000 $50,000 $40,000 $160,000
Less variable costs 32,000 26,000 16,000 74,000
Less direct fixed costs 14,000 19,000 12,000 45,000
Less allocated fixed costs 6,000 10,000 4,000 20,000
Net income $18,000 $ (5,000) $ 8,000 $ 21,000
All of the allocated costs will continue even if a division is discontinued. Anheiser allocates indirect fixed costs
based on the number of units to be sold. Since the Wise division has a net loss, Anheiser feels that it should be
discontinued. Anheiser feels if the division is closed, that sales at the Bud division will increase by 10%, and that
sales at the Er division will stay the same.
Instructions
(a) Prepare an analysis showing the effect of discontinuing the Wise division.
(b) Should Anheiser close the Wise division? Briefly indicate why or why not.
Solution
(a) Bud Er Total
Revenue $77,000 $40,000 $117,000
Less variable costs 35,200 16,000 51,200
Less direct fixed costs 14,000 12,000 26,000
Less allocated fixed costs 12,453 7,547 20,000
Net income $15,347 $ 4,453 $ 19,800
Calculations:
Revenue = $70,000 × 110% = $77,000
Variable costs = $32,000 × 110% = $35,200
Allocation of total allocated fixed costs of $20,000:
To Bud: [3,300 ÷ (3,300 + 2,000)] × $20,000 = $12,453
To Er: [2,000 ÷ (3,300 + 2,000)] × $20,000 = $7,547
(b) No. The profit decreases by $1,200 ($21,000 – $19,800) when the division is eliminated. The increase in
sales by 10% of the Bud division was not enough to offset the loss of the Wise division.
Simon Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber
Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber
mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering
disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income
statements for the two divisions for the year ended December 31, 2008 are presented below:
Timber Division Consumer Division Total
Sales $1,500,000 $500,000 $2,000,000
Cost of goods sold 900,000 350,000 1,250,000
Gross profit 600,000 150,000 750,000
Selling & administrative expenses 250,000 180,000 430,000
Net income $ 350,000 $ (30,000) $ 320,000
In the Consumer Division, 70% of the cost of goods sold are variable costs and 25% of selling and administrative
expenses are variable costs. The management of the company feels it can save $45,000 of fixed cost of goods
sold and $60,000 of fixed selling expenses if it discontinues operation of the Consumer Division.
Instructions
(a) Determine whether the company should discontinue operating the Consumer Division.
(b) If the company had discontinued the division for 2008, determine what net income would have been.
Solution
(a) CONSUMER DIVISION
Net Income
Continue Eliminate Increase (Decrease)
Sales $500,000 $ -0- $(500,000)
Variable expenses:
Cost of goods sold 245,000 (A) -0- 245,000
Selling and admin. exp. 45,000 (B) -0- 45,000
Contribution margin 210,000 -0- (210,000)
Fixed expenses:
Cost of goods sold 105,000 (C) 60,000 45,000
Selling and admin. exp. 135,000 (D) 75,000 60,000
Net income $ (30,000) $(135,000) $(105,000)
(A) $350,000 × 70% = $245,000 (C) $350,000 – $245,000 = $105,000

(B) $180,000 × 25% = $45,000 (D) $180,000 – $45,000 = $135,000
The company should continue the Consumer Division because contribution margin, $210,000, is greater than
the avoidable fixed costs, $105,000.
(b) Net income for the total company would have been $245,000:
Timber Division + Decrease in Net Income
$350,000 + $(105,000) = $245,000
A recent accounting graduate from Missouri State University evaluated the operating perform-ance of Boswell
Company's four divisions. The following presentation was made to Boswell's Board of Directors. During the
presentation, the accountant made the recommendation to eliminate the Southern Division stating that total net
income would increase by $60,000. (See analysis below.)
Other Three Divisions Southern Division Total
Sales $2,000,000 $480,000 $2,480,000
Cost of Goods Sold 950,000 400,000 1,350,000
Gross Profit 1,050,000 80,000 1,130,000
Operating Expenses 800,000 140,000 940,000
Net Income $ 250,000 $ (60,000) $ 190,000
For the other divisions, cost of goods sold is 80% variable and operating expenses are 70% variable. The cost
of goods sold for the Southern Division is 35% fixed, and its operating expenses are 75% fixed. If the division is
eliminated, only $10,000 of the fixed operating costs will be eliminated.
Instructions
Do you concur with the new accountant's recommendation? Present a schedule to support your answer.
Solution
Net Income
Continue Eliminate Increase (Decrease)
Sales $480,000 $ -0- $(480,000)
Variable Expenses
Cost of goods sold 260,000 -0- 260,000
Operating expenses 35,000 -0- 35,000
Total Variable 295,000 -0- 295,000
Contribution Margin 185,000 -0- (185,000)
Fixed Expenses
Cost of goods sold 140,000 140,000 -0-
Operating expenses 105,000 95,000 10,000
Net Income (Loss) $ (60,000) $(235,000) $(175,000)
The accountant is not correct. If the Southern Division is eliminated, the net income will be $175,000 less, not
$60,000 greater.
The reduction in income is the result of the loss of the contribution margin less the avoidable fixed costs of
$10,000.
Penner Company has 8,000 machine hours available to use to produce either Product A or Product B. The cost
accounting department developed the following unit information for each of the products:
Product A Product B
Sales price $57 $71
Direct materials 19 21
Direct labor 15 14
Variable manufacturing overhead 8 12
Fixed manufacturing overhead 3 6
Machine hours required .6 1.2
Management desires to make a decision regarding which product to produce in order to maximize the company's
income.
Instructions
Taking into consideration the constraint under which the company operates, prepare a report to show which
product should be produced and sold.
Solution
PENNER COMPANY
Contribution Margin per Unit Limited Resource
Contribution margin per unit: Product A Product B

Sales price $57 $71
Variable costs
Direct material $19 $21
Direct labor 15 14
Variable overhead 8 42 12 47
Contribution margin $15 $24
Machine hours required: .6 hrs. 1.2 hrs.
Contribution margin per unit of limited resource

($15 ÷ .6) $ 25
($24 ÷ 1.2) $ 20
Machine hours available 8,000 8,000
Contribution margin $200,000 $160,000
The company should produce and sell Product A.
ACTIVITY-BASED COSTING
Lewis Company has two major segments with the following information:
Upstate Downstate Total_

Annual revenue $200,000 $600,000 $800,000
Annual salesperson salaries $30,000 $45,000 $75,000
Number of customers 50 75 125
Miles driven 80,000 40,000
The business also has overhead costs as follows:
Cost pool Cost in pool Cost driver__________

Travel $ 36,000 miles driven
Entertainment 144,000 number of customers
Administrative 150,000 salaries
--------
Total $330,000
a. Allocate the overhead costs to the segments based on sales revenue.

b. Determine the income of each segment.
c. Allocate the overhead costs to the segments using ABC.
d. Determine the income of each segment under ABC.
SOLUTION:
a. Upstate: $82,500 [$330,000 x ($200,000/$800,000)]

Downstate: $247,500 [$330,000 x ($600,000/$800,000)]
b. Upstate: $87,500 [$200,000 - $30,000 - $82,500]

Downstate: $307,500 [$600,000 - $45,000 - $247,500]
c. & d.
Upstate Downstate Total_
Annual revenue $200,000 $600,000 $800,000
Annual salesperson salaries 30,000 45,000 75,000
Travel 24,000 12,000 36,000
Entertainment 57,600 86,400 144,000
Administrative 60,000 90,000 150,000
------- ------- -------
Income $ 28,400 $366,600 $395,000
Johnson & Mathey is an architectural and landscape services firm. The firm
operates in three major segments. The following information has been obtained,
New Design Remodel Landscape Total__

Annual revenues $500,000 $1,200,000 $300,000 $2,000,000
Number of jobs 50 150 200 400
Chargeable hours 6,000 10,000 14,000 30,000
Salaries for the year were $800,000; overhead for the year was $1,000,000.
a. Determine the profits for each segment, assuming costs are allocated based
on annual revenues.
b. Determine the profits for each segment, assuming costs are allocated based
on the number of jobs.
c. Determine the profits for each segment, assuming costs are allocated based
on chargeable hours.
SOLUTION:
a. New Design: $50,000 [$500,000 - ($1,800,000 x $500,000/$2,000,000)]

Remodel: $120,000 [$1,200,000 - ($1,800,000 x $1,200,000/$2,000,000)]
Landscape $30,000 [$300,000 - ($1,800,000 x $300,000/$2,000,000)]
b. New Design: $275,000 [$500,000 - ($1,800,000 x 50/400)]

Remodel: $525,000 [$1,200,000 - ($1,800,000 x 150/400)]
Landscape $(600,000) [$300,000 - ($1,800,000 x 200/400)]
c. New Design: $140,000 [$500,000 - ($1,800,000 x 6,000/30,000)]

Remodel: $600,000 [$1,200,000 - ($1,800,000 x 10,000/30,000)]
Landscape $(540,000) [$300,000 - ($1,800,000 x 14,000/30,000)]
Coleman Company produces three products, X, Y, & Z. The income statement for the
firm as a whole is:
Sales $1,850,000
Less variable costs 1,310,000
----------
Contribution margin $ 540,000
Less fixed costs
Selling 330,000
Administrative 180,000
-------
510,000
----------
Net income $ 30,000
The sales, variable costs, and line-sustaining fixed costs for the four
products are:
Q___ R___ S_ __
Sales $250,000 $400,000 $1,200,000
Variable costs 60% 65% 75%
Line-sustaining costs $90,000 $130,000 $ 230,000
a. Prepare an income statement segmented by product line, including a column

for the entire firm. Be sure to show segment income as well as total
enterprise income.
SOLUTION:
Q___ R___ S ___ Total _

Sales $250,000 $400,000 $1,200,000 $1,850,000
Variable costs 150,000 260,000 900,000 1,310,000
------- ------- --------- ---------
Contribution margin $100,000 $140,000 $ 300,000 $ 540,000
Line-sustaining costs 90,000 130,000 230,000 450,000
------- ------- --------- ---------
Segment income $ 10,000 $ 10,000 $ 70,000 $ 90,000
Company-sustaining 60,000
---------
Enterprise income $ 30,000
Danner Company incurs $1,600,000 in manufacturing overhead costs each month. The
company has been allocating overhead to individual product lines based on
direct labor hours.
Amount Amount of
Cost driver In Pool Activity
----------- -------- ---------
Direct labor hours $500,000 40,000
Number of setups 700,000 1,000
Number of tests 400,000 500
----------
Total overhead costs $1,600,000
==========
Two products have the following characteristics:
Product S Product T
--------- ---------
Number of setups 20 100
Number of tests 2 150
a. Determine the overhead to be allocated to each product using direct labor

hours as the only cost driver.
b. Determine the overhead to be allocated to each product using the three
drivers identified.
SOLUTION:
a. Product S: $80,000 [2,000 x ($1,600,000/40,000)]

Product T: $40,000 [1,000 x ($1,600,000/40,000)]
b. Product S: $40,600; Product T: $202,500
Amount Amount of
Cost driver In Pool Activity Rate
----------- -------- --------- --------
Direct labor hours $500,000 40,000 $ 12.50
Number of setups 700,000 1,000 700.00
Number of tests 400,000 500 800.00
Product S Product T
--------- ---------
Direct labor hours, $25,000 $12,500
Number of setups 14,000 70,000
Number of tests 1,600 120,000
------ -------
$40,600 $202,500
Seneca Company has two products with the following information:
Engine Race
Rebuilds Cars Total__
Annual revenue $1,200,000 $1,400,000 $2,600,000
Material costs 400,000 $600,000 $1,000,000
Labor costs 250,000 150,000 $400,000
Number of receipts 8,000 2,000
Number of batches 425 75
The business also has overhead costs as follows:
Cost pool Cost in pool Cost driver__________

Receiving $300,000 number of receipts
Material moves 275,000 number of batches
Administrative 225,000 labor cost
--------
Total $800,000
a. Allocate the overhead costs to the segments based on material costs.

b. Determine the income of each segment.
c. Allocate the overhead costs to the segments using ABC.
d. Determine the income of each segment under ABC.
SOLUTION:
a. Engines: $320,000 [$800,000 x ($400,000/$1,000,000)]

Race Cars: $480,000 [$800,000 x ($600,000/$1,000,000)]
b. Engines: $230,000 [$1,200,000 - $400,000 - $250.000 - $320,000]

Race Cars: $170,000 [$1,400,000 - $600,000 - $150,000 - $480,000]
c. & d.
Engine Race
Rebuilds Cars Total__
Annual revenue $1,200,000 $1,400,000 $2,600,000
Material costs 400,000 600,000 1,000,000
Labor costs 250,000 150,000 400,000
Receiving 240,000 60,000 300,000
Material moves 233,750 41,250 275,000
Administrative 140,625 84,375 225,000
------- ------- --------
Income $(64,375) $464,375 $ 400,000

PREPARE FOR EXAM WITH CVP AND COST FLOW PROBLEMS

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PREPARE FOR EXAM WITH CVP AND COST FLOW PROBLEMS

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MAY THESE PROBLEMS HELP YOU IN PREPARING FOR THE EXAM ON DECEMBER 3, 2019.

a. Compute the break-even point in dollars.

a. $480,000, $120,000/25% or $120,000/[($16 - $12)/$16]

b. 37,500, ($120,000 + $30,000)/($16 - $12)

c. $17.20, $12 + [($120,000 + $36,000)/30,000]

d. 50,000, $120,000/[$16 - $12 - (.10 x $16)]

Fixed costs are $500,000.

a. Compute the weighted-average contribution margin percentage.

b. Compute the sales (in $) required to earn a $100,000 profit.

d. Determine the total unit sales needed to earn $100,000.

b. $1,021,277 [($500,000 + $100,000)/.5875]

d. 171,429, ($500,000 + $100,000)/$3.50

a. Compute the break-even point in dollars.

a. $1,600,000 {$400,000/25% or $400,000/[($80 - $60)/$80]}

b. 25,000 [($400,000 + $100,000)/($80 - $60)]

c. $78.40 {$60 + [($400,000 + $152,000)/30,000]}

d. 33,333 {$400,000/[$80 - $60 - (.10 x $80)]}

Fixed costs $126,000

*Sales price per unit $60.00

Break-even sales in dollars:

Fixed costs $126,000

(b) Margin of safety:

Actual rentals - Break-even rentals (3,000 – 2,625)

(c) Variable costs per person per night: Fixed costs:

Break-even number of persons per night rentals:

Fixed costs $126,000

*Sales price per unit $65

Break-even point in sales dollars: 2,520 × $65 = $163,800

Work in process, December 1 $ 30,000

COST BEHAVIOR AND ESTIMATION

a. Variable $4,000 ÷ 2,000 = $2.00 per unit; 4,000 × $2.00 = $8,000

(b) (1) Break-even oil changes in units:

(2) Break-even sales in dollars:

*Selling price per unit (a) $20.00

(c) Fixed costs + Net income $32,000 + $20,000

Variable VS Absorption Costing

Dolan Company developed the following information for 2008:

Production in units .......................................................... 25,000 25,000

(1) Sales Qtr. 1 $480,000 × 110% = $528,000

July August September Total

Yount Company has budgeted the following unit sales:

(2) YOUNT COMPANY

Webster Company has the following sales budget.

b. Compute budgeted accounts receivable at the end of March.

c. Compute budgeted inventory at the end of February.

d. Compute budgeted purchases in February.

e. March purchases are $290,000. Compute budgeted cash payments in March to

f. Compute budgeted accounts payable for goods at the end of February.

a. March receipts: $264,000 [($240,000 x 60%) + ($300,000 x 40%)]

b. Receivables at end of March: $180,000 [$300,000 x (100% - 40%)]

c. Inventory at end of February: $420,000 ($300,000 x 70% x 2)

d. February purchases: $252,000 [($240,000 x 70%) + ($300,000 x 2 x 70%)

e. March payments: $282,400 [(252,000 x 20%) + ($290,000 x 80%)]

f. AP at end of February: $50,400 ($252,000 x 20%)

g. Cash at end of March: $2,600 ($25,000 + $264,000 - $282,400 - $24,000)

RESPONSIBILITY ACCOUNTING; STANDARD COSTING AND VARINCE ANALYSIS

Flexible Budget Per

Overhead volume variance:

Actual results for 2009 are presented below:

Cost Elements Standard Quantity × Standard Price = Standard Cost

Actual results for 2009 were as follows:

2. Direct materials quantity variance = $9,500 unfavorable.

3. Direct labor price variance = $14,000 favorable.

Q_ R_ S ___ Total _