# Chp CHAPTER 14 COST ALLOCATION

```					CHAPTER 14: COST ALLOCATION, CUSTOMER-PROFITABILITY ANALYSIS, AND SALES-VARIANCE ANALYSIS 91. The static-budget variance will be favorable when a. actual unit sales are less than budgeted unit sales. b. the actual contribution margin is greater than the static-budget contribution margin. c. the actual sales mix shifts toward the less profitable units. d. the composite unit for the actual mix is greater than for the budgeted mix. Answer: 92. b Difficulty: 3 Objective: 7

More insight into the sales-volume variance can be gained by subdividing it into a. the sales-mix variance and the sales-quantity variance. b. the market-share variance and the market-size variance. c. the flexible-budget variance and the market-size variance. d. a cost hierarchy. Answer: a Difficulty: 1 Objective: 7

93.

The budgeted contribution margin per composite unit for the budgeted mix can be computed by a. dividing the total budgeted contribution margin by the actual total units. b. dividing the total budgeted contribution margin by the total budgeted units. c. dividing the actual total contribution margin by the total actual total units d. dividing the actual total contribution margin by the total budgeted units. Answer: b Difficulty: 1 Objective: 7

94.

The sales-mix variance results from a difference between the a. actual market share and the budgeted market share. b. actual contribution margin and the budgeted contribution margin. c. budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix. d. actual market size in units and the budgeted market size in units. Answer: c Difficulty: 2 Objective: 7

95.

The sales-mix variance will be unfavorable when a. the actual sales mix shifts toward the less profitable units. b. the composite unit for the actual mix is greater than for the budgeted mix. c. actual unit sales are less than budgeted unit sales. d. the actual contribution margin is greater than the static-budget contribution margin. Answer: a Difficulty: 3 Objective: 7

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96.

The sales-mix variance will be favorable when a. the actual contribution margin is greater than the static-budget contribution margin. b. actual unit sales are less than budgeted unit sales. c. the actual sales mix shifts toward the less profitable units. d. the composite unit for the actual mix is greater than for the budgeted mix. Answer: d Difficulty: 3 Objective: 7

97.

An unfavorable sales-mix variance would MOST likely be caused by a. a new competitor providing better service in the high-margin product sector. b. a competitor having distribution problems with high-margin products. c. the company offering low-margin products at a higher price. d. the company experiencing quality-control problems that get negative media coverage of low-margin products. Answer: a Difficulty: 3 Objective: 7

98.

A shift towards a mix of products with a lower contribution-margin per unit will MOST likely result in a. an unfavorable sales-mix variance. b. an unfavorable sales-quantity variance. c. a favorable sales-mix variance. d. a favorable sales-quantity variance. Answer: a Difficulty: 2 Objective: 7

99.

The sales-quantity variance will be unfavorable when a. the composite unit for the actual mix is greater than for the budgeted mix. b. actual unit sales are less than budgeted unit sales. c. the actual contribution margin is greater than the static-budget contribution margin. d. the actual sales mix shifts toward the less profitable units. Answer: b Difficulty: 3 Objective: 7

100. A favorable sales-quantity variance would MOST likely be caused by a. a new competitor providing better service in the high-margin product sector. b. a competitor having distribution problems with high-margin products. c. the company offering low-margin products at a higher price. d. the company experiencing quality-control problems that get negative media coverage of low-margin products. Answer: b Difficulty: 3 Objective: 7

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101. (Actual sales quantity in units - Static budget sales quantity in units) x Budgeted contribution margin per unit = a. the sales-volume variance. b. the sales-mix variance. c. the sales-quantity variance. d. the market-share variance. Answer: a Difficulty: 2 Objective: 7

102. The sales-quantity variance results from a difference between a. the actual sales mix and the budgeted sales mix. b. the actual quantity of units sold and the budgeted quantity of unit sales in the static budget. c. actual contribution margin and the budgeted contribution margin. d. actual market size in units and the budgeted market size in units. Answer: b Difficulty: 2 Objective: 7

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 103 THROUGH 106. Ceylon Tea Products has an exclusive contract with British Distributors. Calamine and Ceylon are two brands of teas that are imported and sold to retail outlets. The following information is provided for the month of March: Actual Calamine Ceylon 1,700 lbs. 1,800 lbs. \$2.50 \$2.50 1.00 2.00 \$1.50 \$0.50 Budget Calamine Ceylon 2,000 lbs. 1,500 lbs \$2.00 \$3.00 1.00 1.50 \$1.00 \$1.50

Sales in pounds Price per pound Variable cost per pound Contribution margin

Budgeted and actual fixed corporate-sustaining costs are \$1,750 and \$2,000, respectively. 103. What is the actual contribution margin for the month? a. \$3,750 b. \$4,400 c. \$4,250 d. \$3,450 Answer: d Difficulty: 2 (1,700 x \$1.50) + (1,800 x \$0.50) = \$3,450 104. What is the contribution margin for the flexible budget? a. \$3,750 b. \$4,400 c. \$4,250 d. \$3,450 Answer: b Difficulty: 2 (1,700 x \$1.00) + (1,800 x \$1.50) = \$4,400
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105. For the contribution margin, what is the total static-budget variance? a. \$300 favorable b. \$950 unfavorable c. \$500 favorable d. \$800 unfavorable Answer: d Difficulty: \$800 unfavorable = \$4,250 - \$3,450 2 Objective: 7

106. For the contribution margin, what is the total flexible-budget variance? a. \$300 favorable b. \$950 unfavorable c. \$500 favorable d. \$800 unfavorable Answer: b Difficulty: \$950 unfavorable = \$4,400 - \$3,450 2 Objective: 7

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 107 THROUGH 109. Edna’s Flowering Plants provides the following information for the month of May: Actual Tulips Geraniums 1,950 1,800 \$11 \$18 Budget Tulips Geraniums 2,250 1,500 \$10 \$20

Sales in units Contribution margin per unit

107. What is the budgeted contribution margin per composite unit for the actual mix? a. \$13.80 b. \$14.00 c. \$14.36 d. \$14.80 Answer: d Difficulty: 2 [\$10 x (1,950/3,750)] + [\$20 x (1,800/3,750)] = \$14.80 Objective: 7

108. What is the budgeted contribution margin per composite unit for the budgeted mix? a. \$13.80 b. \$14.00 c. \$14.36 d. \$14.80 Answer: b Difficulty: 2 [\$10 x (2,250/3,750)] + [\$20 x (1,500/3,750)] = \$14.00 109. For May, Edna will report a. a favorable sales-mix variance. b. an unfavorable sales-mix variance. c. a favorable sales-volume variance. d. an unfavorable sales-volume variance. Answer: a Difficulty:
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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 110 THROUGH 112. Edna’s Flowering Plants provides the following information for the month of May: Fuchsia 10,000 \$9 Actual Dogwood 2,500 \$7 Budget Fuchsia Dogwood 8,000 2,000 \$10 \$8

Sales in units Contribution margin per unit

110. What is the budgeted contribution margin per composite unit for the actual mix? a. \$8.00 b. \$8.60 c. \$9.00 d. \$9.60 Answer: d Difficulty: 2 [\$10 x (10,000/12,500)] + [\$8 x (2,500/12,500)] = \$9.60 Objective: 7

111. What is the budgeted contribution margin per composite unit for the budgeted mix? a. \$8.00 b. \$8.60 c. \$9.00 d. \$9.60 Answer: d Difficulty: 2 [\$10 x (8,000/10,000)] + [\$8 x (2,000/10,000)] = \$9.60 112. For May, Edna will report a. a favorable sales-mix variance. b. an unfavorable sales-mix variance. c. a favorable sales-volume variance. d. an unfavorable sales-volume variance. Answer: c Difficulty: 3 Objective: 7 Objective: 7

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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 113 THROUGH 116. The XTRA Appliance Manufacturing Corporation manufactures two vacuum cleaners, the Standard and the Super. The following information was gathered about the two products: Budgeted sales in units Budgeted selling price Budgeted contribution margin per unit Actual sales in units Actual selling price Standard 3,200 \$300 \$210 3,500 \$325 Super 800 \$850 \$550 1,500 \$840

113. What is the budgeted sales-mix percentage for the Standard and the Super vacuum cleaners, respectively? a. 0.80 and 0.20 b. 0.70 and 0.30 c. 0.20 and 0.80 d. 0.30 and 0.70 Answer: a Difficulty: 1 3,200/(3,200 + 800) and 800/(3,200 + 800) Objective: 7

114. What is the total sales-volume variance in terms of the contribution margin? a. \$108,000 unfavorable b. \$108,000 favorable c. \$278,000 favorable d. \$448,000 favorable Answer: d Difficulty: Standard = (3,500 - 3,200) x \$210 = Super = (1,500 - 800) x \$550 = 2 \$ 63,000 F 385,000 F \$448,000 F Objective: 7

115. What is the total sales-quantity variance in terms of the contribution margin? a. \$110,000 favorable b. \$170,000 favorable c. \$278,000 favorable d. \$448,000 favorable Answer: c Difficulty: Standard = (5,000 - 4,000) x .8 x 210 = Super = (5,000 - 4,000) x .2 x 550 = 2 \$168,000 F 110,000 F \$278,000 F Objective: 7

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116. What is the total sales-mix variance in terms of the contribution margin? a. \$110,000 favorable b. \$170,000 favorable c. \$278,000 favorable d. \$448,000 favorable Answer: b Difficulty: Standard = 5,000 x (.7 - .8) x 210 = Super = 5,000 x (.3 - .2) x 550 = 2 \$105,000 U \$275,000 F \$170,000 F Objective: 7

117. More insight into the sales-quantity variance can be gained by subdividing it into a. the sales-mix variance and the sales-volume variance. b. the market-share variance and the market-size variance. c. the flexible-budget variance and the sales-volume variance. d. a cost hierarchy. Answer: b Difficulty: 1 Objective: 8

118. The market-share variance results from a difference between the a. actual market share and the budgeted market share. b. actual contribution margin and the budgeted contribution margin. c. budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix. d. actual market size in units and the budgeted market size in units. Answer: a Difficulty: 1 Objective: 8

119. The market-share variance will be favorable when a. the flexible-budget contribution margin is greater than the static-budget contribution margin. b. the actual market share is greater than the budgeted market share. c. actual market size in units is less than budgeted market size in units. d. actual unit sales are less than budgeted unit sales. Answer: b Difficulty: 2 Objective: 8

120. The market-share variance is MOST influenced by a. economic downturns in the economy. b. how well managers perform relative to their peers. c. shifts in consumer preferences that are outside of the manager’s control. d. rates of inflation. Answer: b Difficulty: 3 Objective: 8

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121. An unfavorable market-share variance would MOST likely be caused by a. a competitor providing better service. b. a competitor having distribution problems. c. the company offering products at a lower price. d. the company experiencing quality-control problems that get negative media coverage. Answer: a Difficulty: 3 Objective: 8

122. The market-size variance results from a difference between the a. actual market share and the budgeted market share. b. actual contribution margin and the budgeted contribution margin. c. budgeted contribution margin per composite unit for the actual mix and the budgeted contribution margin per composite unit for the budgeted mix. d. actual market size in units and the budgeted market size in units. Answer: d Difficulty: 1 Objective: 8

123. The market-size variance will be unfavorable when a. the flexible-budget contribution margin is greater than the static-budget contribution margin. b. the actual market share is greater than the budgeted market share. c. actual market size in units is less than budgeted market size in units. d. actual unit sales are less than budgeted unit sales. Answer: c Difficulty: 2 Objective: 8

124. A favorable market-size variance would MOST likely be caused by a. the company reducing the services provided to customers. b. an increase in overall market size. c. a new competitor moving into the area. d. a competitor providing better prices. Answer: b Difficulty: 3 Objective: 8

125. Reliable information about market size and market share is available a. for no industries. b. for the management consulting and personal financial planning industries. c. for the automobile and television industries. d. for all industries. Answer: c Difficulty: 2 Objective: 8

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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 126 THROUGH 128. Zorro Company manufactures remote control devices for garage doors. The following information was collected during June: Actual market size (units) Actual market share Actual average selling price Budgeted market size (units) Budgeted market share Budgeted average selling price Budgeted contribution margin per composite unit for budgeted mix 126. What is the market-size variance? a. \$500 U b. \$1,500 U c. \$1,600 F d. \$1,000 F Answer: b Difficulty: (10,000 – 11,000) x 0.30 x \$5 = \$1,500 U 127. What is the market-share variance? a. \$1,000 F b. \$1,100 F c. \$500 U d. \$1,500 U Answer: a Difficulty: 10,000 x (0.32 – 0.30) x \$5 = \$1,000 F 128. What is the sales-quantity variance? a. \$1,500 U b. \$1,000 F c. \$500 U d. The variance cannot be determined. Answer: c Difficulty: \$1,500 U + \$1,000 F = \$500 U 2 Objective: 8 2 Objective: 8 2 Objective: 8 10,000 32% \$10.00 11,000 30% \$11.00 \$ 5.00

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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 129 THROUGH 137. The Sasita Corporation manufactures two types of vacuum cleaners, the ZENITH for commercial building use and the House-Helper for residences. Budgeted and actual operating data for the year 20x3 were as follows: Static Budget Number sold Contribution margin Actual Results Number sold Contribution margin ZENITH 5,000 \$1,500,000 ZENITH 4,000 \$1,280,000 House-Helper 20,000 \$3,000,000 House-Helper 28,000 \$3,920,000 Total 25,000 \$4,500,000 Total 32,000 \$5,200,000

Prior to the beginning of the year, a consulting firm estimated the total volume for vacuum cleaners of the ZENITH and House-Helper category to be 250,000 units, but actual industry volume was 256,000 units. 129. What is the contribution margin for the flexible budget? a. \$1,200,000 b. \$4,200,000 c. \$5,200,000 d. \$5,400,000 Answer: d Difficulty: 2 Objective: 7 Budgeted contribution margin per unit: ZENITH = \$1,500,000/5,000 = \$300 House-Helper = \$3,000,000/20,000 = \$150 Flexible-budget contribution margin: 4,000 x \$300 = \$1,200,000 28,000 x \$150 = 4,200,000 \$5,400,000 130. What is the total static-budget variance in terms of the contribution margin? a. \$900 favorable b. \$700 favorable c. \$200 unfavorable d. \$360 unfavorable Answer: b Difficulty: \$700 favorable = \$4,500,000 - \$5,200,000 1 Objective: 7

131. What is the total flexible-budget variance in terms of the contribution margin? a. \$900 favorable b. \$700 favorable c. \$200 unfavorable d. \$360 unfavorable Answer: c Difficulty: 2 \$200 unfavorable = \$5,400,000 - \$5,200,000 Objective: 7

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132. What is the total sales-volume variance in terms of the contribution margin? a. \$900 favorable b. \$1,260 favorable c. \$200 unfavorable d. \$360 unfavorable Answer: a Difficulty: \$900 favorable = \$4,500,000 - \$5,400,000 2 Objective: 7

133. What is the total sales-quantity variance in terms of the contribution margin? a. \$200 unfavorable b. \$900 favorable c. \$360 unfavorable d. \$1,260 favorable Answer: d Difficulty: 3 Objective: 7 Budgeted sales-mix percentage: ZENITH = 5,000/25,000 = 0.20 House-Helper = 20,000/25,000 = 0.80 Actual sales-mix percentage: ZENITH = 4,000/32,000 = 0.125 House-Helper = 28,000/32,000 = 0.875 Sales-quantity Actual units of all products sold – variance Budgeted units of all products sold ZENITH (32,000 – 25,000) x House-Helper (32,000 – 25,000) x Total Budgeted sales-mix % Budgeted CM per unit \$300 \$150 Sales-quantity variance

0.20 x 0.80 x

= \$ 420,000 F = \$ 840,000 F \$1,260,000 F

134. What is the total sales-mix variance in terms of the contribution margin? a. \$200 unfavorable b. \$360 unfavorable c. \$900 favorable d. \$1,260 favorable Answer: b Sales-mix variance ZENITH House-Helper Total Difficulty: 3 Actual units of Actual sales-mix all products % - Budgeted sold sales-mix % 32,000 x (0.125 - 0.200) x 32,000 x (0.875 - 0.800) x Objective: 7 Budgeted CM Sales-mix per unit variance \$300 \$150 = \$720,000 F = \$360,000 U \$360,000 U

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135. What is the budgeted contribution margin per composite unit of the budgeted mix? a. \$140.625 b. \$180.000 c. \$208.000 d. \$162.500 Answer: b Difficulty: ZENITH = \$300 x .2 = House-Helper = \$150 x .8 = OR \$4,500,000/25,000 = 136. What is the market-size variance? a. \$1,152,000 F b. \$108,000 F c. \$360,000 U d. \$1,260,000 F Answer: b Difficulty: 3 Actual market share = 32,000/256,000 = 0.125 Budgeted market share = 25,000/250,000 = 0.100. Market-size variance Actual market size in units Budgeted market size in units (256,000 250,000) x Budgeted market share Objective: 8 2 \$ 60 120 \$180 Objective: 8

Budgeted CM per composite unit for budgeted mix \$180

Market-size variance

Sasita Corp

0.100 x

= \$108,000 F

137. What is the market-share variance? a. \$360,000 U b. \$1,260,000 F c. \$1,152,000 F d. \$108,000 F Answer: c Difficulty: Actual market size in units 3 Objective: Budgeted CM per composite unit for budgeted mix \$180 8

Market-share variance

Sasita Corp

256,000 x

Actual market share – Budgeted market share (0.125 - 0.100) x

Market-share variance

= \$1,152,000 F

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138. More insight into the flexible-budget variance for direct materials can be gained by subdividing it into the direct materials a. mix and volume variances. b. market-share and market-size variances. c. mix and yield variances. d. price and efficiency variances. Answer: d Difficulty: 2 Objective: A

139. More insight into the efficiency variance for direct materials can be gained by subdividing it into the direct materials a. mix and volume variances. b. market-share and market-size variances. c. mix and yield variances. d. price and efficiency variances. Answer: c Difficulty: 2 Objective: A

140. The direct materials mix variance will be favorable when a. the flexible-budget contribution margin is greater than the actual contribution margin. b. the actual direct materials input mix is less expensive than the budgeted direct materials input mix. c. the actual quantity of total inputs used is greater than the flexible budget for total inputs. d. actual unit sales are less than budgeted unit sales. Answer: b Difficulty: 2 Objective: A

141. The materials yield variance will be unfavorable when a. the flexible-budget contribution margin is greater than the actual contribution margin. b. the actual direct materials input mix is less expensive than the budgeted direct materials input mix. c. the actual quantity of total inputs used is greater than the flexible budget for total inputs. d. actual unit sales are less than budgeted unit sales. Answer: c Difficulty: 2 Objective: A

142. The direct materials mix variance is the a. average of the direct materials mix variances for each input. b. sum of the direct materials mix variances for each input. c. difference between the direct materials mix variances for each input. d. multiple of the direct materials mix variances for each input. Answer: b Difficulty: 2 Objective: A

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