1)ABC Company earns an average contribution margin ratio of 40% on its sales. The local store manager estimates that he can increase monthly sales volume by $45,000 by spending an additional $7,000 per month for direct mail advertising. Compute the monthly increase in operating income if the manager's estimate about the increased sales volume is accurate.

Multiple Choice

• $18,000
• $11,000
• $16,000
• $23,000

2)ABC Corporation had planned to produce 50,000 units of product during the first quarter of the current year. The company prepared the following budget on May 1:

Budgeted (50,000 units)

Variable costs:

Direct materials used$ 36,000

Direct labor 45,000

Variable overhead 22,500

Fixed costs:

Manufacturing overhead 58,500

Total manufacturing costs $162,000

a)During the first quarter, ABC produced 60,000 units and incurred total manufacturing costs of $184,000.

Which of the following amounts shouldnotbe included in ABC's flexible budget at a 60,000-unit level?

Multiple Choice

• Direct labor, $54,000
• Variable overhead, $27,000
• Fixed manufacturing overhead, $70,200
• Direct materials used, $43,200

b)During the first quarter, ABC produced 60,000 units and incurred total manufacturing costs of $184,000.

A performance report for ABC's first quarter of operations using a flexible budget approach would show:

Multiple Choice

• Actual costs over budget by $11,700.
• Actual costs over budget by $1,300.
• Actual costs over budget by $15,150.
• Total costs per the flexible budget of $194,400.