1.In all respects, Company A and Company B are identical except that Company

A's costs are mostly variable, whereas Company B's costs are mostly fixed.

When sales increase, which company will tend to realize the greatest increase in

profits? Explain.

2. Under absorption costing, how is it possible to increase net operating income

without increasing sales?

3. In what fundamental ways does activity-based costing differ from traditional

costing methods?

4. "The principal purpose of the cash budget is to see how much cash the company

will have in the bank at the end of the year." Do you agree? Explain.

5. What effect, if any, would you expect poor-quality materials to have on direct

labor variances?