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FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition E22-32 Requirements 1. Prepare a budgeted income statement with columns for 1,300 units, 1,400 units, and 1,600 units sold. 2. How might managers use this type of budgeted income statement? 3. How might spreadsheet software such as Excel assist in this type of analysis? Solution: Requirement 1 BOLDEN COMPANY Budgeted Income Statement For the Year Ended December 31, 2017 Unit Sales 1,300 Sales Revenue ($700* units sold) xx Cost of Goods Sold ( 55% of sales) xx Gross Profit xx S&A Expenses (35% of Sales) xx Operating Income xx 1,400 xx xx xx xx xx Requirement 2 Chapter 22: Master Budgets Page 1 of 8 FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition Requirement 3 Chapter 22: Master Budgets Page 2 of 8 FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition 00 units, 1,600 xx xx xx xx xx Chapter 22: Master Budgets Page 3 of 8 FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition Chapter 22: Master Budgets Page 4 of 8 FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition Prepare a selling and administrative expense budget for each of the three quarters of 2016 and totals for the nine-month period. STEWART, INC. Selling and Administrative Expense Budget Nine Months Ended September 30, 2016 Quarter Ended Mar. 31 Jun. 30 Sep. 30 Nine-Month Total Varialbe Expenses: Commission Expense (4% of Sales) Misc. Expense (3% of sales) Total Variable Expenses Fixed Expenses: Rent Expense Salaires Expense Depreciation Expense Total Fixed Expenses Total S&A expenses Chapter 22: Master Budgets Page 5 of 8 FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition ine-Month Chapter 22: Master Budgets Page 6 of 8 FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition E22A-38 Prepare a budgeted balance sheet for July 31, 2016. Solution: OLLIES Budgeted Balance Sheet July 31, 2016 Assets Current Assets: Cash Accounts Receivable Merchandise Inventory Total Current Assets Property, Plant, and Equipment: Furniture and Fixtures Less:Accumulated Depreciation Total Assets Chapter 22: Master Budgets xx xx xx xx xx xx xx xx Liabilities Current Liabilities: Accounts Payable xx Stockholders' Equity Stockholders Equity Total Liabilities and Stockholders Equity xx xx Page 7 of 8 FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition June 30, Balance Payments for purcha Payments of Accounts Accounts Cash Receivable xx xx (xx) (xx) Accumulated Accounts Stockholders' Depreciation Payable Equity (xx) xx xx xx (xx) Depreciation Expense Cost of Goods sold (a) Payments of other exp Merchandise Furniture Inventory & Fixtures xx xx (xx) (xx) (xx) (xx) xx (xx) (xx) Sales on account Cash Receipts July 31, Balance xx xx xx (xx) xx xx xx (xx) xx xx (a) 60% * xx Sales = COGS Chapter 22: Master Budgets Page 8 of 8 E22-32 Using sensitivity analysis Learning Objective 5 1. Op. Inc. at 1,600 units $112,000 Bolden Company prepared the following budgeted income statement for 2017: Requirements 1. Prepare a budgeted income statement with columns for 1,300 units, 1,400 units, and 1,600 units sold. 2. How might managers use this type of budgeted income statement? 3. How might spreadsheet software such as Excel assist in this type of analysis? E22A-34 Preparing an operating budgetselling and administrative expense budget Learning Objective 6 Appendix 22A Qtr. ended Mar. 31 total S&A exp. $21,700 Consider the sales budget presented in Exercise E22A33. Stewart's selling and administrative expenses include the following: Rent, $1,100 per month Salaries, $2,000 per month Commissions, 4% of sales Depreciation, $1,800 per month Miscellaneous expenses, 3% of sales Prepare a selling and administrative expense budget for each of the three quarters of 2016 and totals for the ninemonth period. E22A-38 Preparing a financial budget--budgeted balance sheet Learning Objective 7 Appendix 22A Cash $7,500 Use the following June actual ending balances and July 31, 2016, budgeted amounts for Ollies to prepare a budgeted balance sheet for July 31, 2016. a. b. c. d. e. f. g. h. i. June 30 Merchandise Inventory balance, $17,760 July purchase of Merchandise Inventory, $4,600, paid in cash July payments of Accounts Payable, $8,700 June 30 Accounts Payable balance, $10,500 June 30 Furniture and Fixtures balance, $34,300; Accumulated Depreciation balance, $29,820 June 30 total stockholders' equity balance, $28,120 July Depreciation Expense, $800 Cost of Goods Sold, 60% of sales Other July expenses, including income tax, $5,000, paid in cash j. June 30 Cash balance, $11,200 k. July budgeted sales, all on account, $12,200 l. June 30 Accounts Receivable balance, $5,180 m. July cash receipts from collections on account, $14,600 Hint: It may be helpful to trace the effects of each transaction on the accounting equation to determine the ending balance of each account. Appendix 22A: Budgeting for Merchandising Companies The chapter illustrated the preparation of the master budget for a manufacturing company. Appendix 22Aillustrates the process for a merchandising company. Many of the calculations and budgets are the same, but in some ways, the master budget for a merchandising company is easier to complete. Merchandising companies purchase the products they sell rather than manufacture them. Therefore, the inventory, purchases, and cost of goods sold budget replaces the production budget, direct materials budget, direct labor budget, manufacturing overhead budget, and cost of goods sold budget. Exhibit 22A-1 shows the master budget components for a merchandising company. We use Greg's Games, a fictitious company, to illustrate the preparation of the master budget. Greg's Games is a retail chain store that carries a complete line of video and board games. We prepare the master budget for one of the stores in the chain for April, May, June, and July, the main selling season. E23-24 Preparing a standard cost income statement Learning Objective 6 GP $1,002,990 AllStar Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2016. The 2016 revenue and cost information for AllStar follows: Sales Revenue $ 1,200,000 Cost of Goods Sold (at standard) 191,240 Direct materials cost variance 7,250 F Direct materials efficiency variance 5,750 U Direct labor cost variance 440 U Direct labor efficiency variance 520 F Variable overhead cost variance 950U Variable overhead efficiency variance 400F Fixed overhead cost variance 2,240U Fixed overhead volume variance 4,560U Assume each fender produced was sold for the standard price of $60, and total selling and administrative costs were $350,000. Prepare a standard cost income statement for 2016 for AllStar Fender. FINANCIAL AND MANAGERIAL ACCOUNTING - Fifth Edition E23-24 Prepare a standard cost income statement for 2016 for All-Star Fender. Solution: ALL-STAR FENDER Standard Cost Income Statement For the Year Ended December 31, 2016 Sales Revenue at Standard (xx per fender * 20000 fenders) Cost of Goods Sold at Standard Manufacturing Cost Variances: Direct Materials Cost Variance Direct Materials Efficiency Variance Direct Labor Cost Variance Variable Overhead Cost Variance Variable Overhead Efficiency Variance Fixed Overhead Cost Variance Fixed Overhead Volume Variance Total Manufacturing Variances xx xx (xx) xx xx (xx) xx (xx) xx xx xx Cost of Goods Sold at actual Gross Profit Selling and Administrative Expenses Operating Income Chapter 23: Flexible Budgets and Standard Cost Systems xx xx xx xx Page 1 of 1 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26) 27) 28) 29) 30) 31) 32) 33) 34) 35) 36) 37) _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ 38)_______ 39) _______ 40) _______ 41) _______ 42) _______ 43) _______ 44) _______ 45) _______ 46) _______ 47) _______ 48) _______ 49) _______ 50) _______ 51) _______ 52) _______ 53) _______ 54) _______ 55) _______ 56) _______ 57) _______ 58) _______ 59) _______ 60) _______ 61) _______ 62) _______ 63) _______ 64) _______ 65) _______ 66) _______ 67) _______ 68) _______ 69) _______ 70) _______ 71) _______ 72) _______ 73) _______ 74) _______ 75)________ 76)________ 77)________ 78)________ 79)________ 80)________ 81) Answer: Standard Service revenue _______ Variable costs _______ Contribution margin _______ Fixed cost Operating income Contribution margin ratio _______ Service revenue per customer _______ Variable cost per customer _______ Contribution margin per customer Deluxe _______ _______ _______ ______ ______ ______ _______ Premium ______ ______ ______ ______ ______ ______ ______ ______ 82) Answer: Purchases on account: Jan Feb March April May June $35,000 $28,000 $34,000 $39,000 $32,000 $29,000 Cash payments to suppliers: In the month of purchase (70%)___________ In the next month: (30%) ______ Total payments to suppliers_______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ _____ _____ ______ 83) 84) Complete the following table: Variance How is the variance calculated? How does the variance arise? Flexible budget Sales volume 85) For each of the following variances, state which manager is most likely to be responsible for the variance. Variance Direct Materials Cost Direct Labor Efficiency Variable Overhead Efficiency Responsible Manager Please circle the correct answers for each True/False question below. Worth 2pts each: 80 1) Absorption costing considers fixed selling and administrative costs as product costs a. True b. False 2) The traditional income statement format is prepared under absorption costing. a. True b. False 3) Variable costing is used for external reporting purposes, and absorption costing is used for internal decision-making purposes. a. True b. False 4) The fixed manufacturing overhead is considered a product cost in variable costing and a period cost in absorption costing. a. True b. False 5) Variable costing considers direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead as product costs. a. True b. False 6) When all the units produced are sold, the operating income calculated under absorption costing is higher when compared to the operating income calculated under variable costing. Assume that there is no beginning Finished Goods Inventory. a. True b. False 7) Under variable costing, the units in the beginning Finished Goods Inventory contain fixed manufacturing overhead costs. a. True b. False 8) When more units are sold than produced, operating income is less under absorption costing. a. True b. False 9) For every unit that is produced but not sold, absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory. a. True b. False 10)Absorption costing is more appropriate when determining the product costs for long-term planning a. True b. False 11)When setting sales prices in the long run, the sales price must cover the full cost including fixed costs. a. True b. False 12)After comparing budgets with the actual results, the feedback allows managers to determine what, if any, corrective action should be taken. a. True b. False 13)A budget represents the plans that a company has in place to achieve its goals. a. True b. False 14)All organizations use one standardized budgeting process. a. True b. False 15)A flexible budget is prepared to represent various levels of sales volume. a. True b. False 16)If the cost of indirect materials needed for production is insignificant, it should not be included in the budgeting process. a. True b. False 17)The Raw Materials Inventory account is must be considered when calculating the amount of materials to be purchased. a. True b. False 18)To calculate budgeted direct labor costs, multiply the number of units to be produced by the number of projected direct labor hours. Next, multiply that total by the average direct cost per hour. a. True b. False 19)The inventory costing method affects the process of preparing the cost of goods sold budget. a. True b. False 20)Cost behavior is considered in developing the selling and administrative expense budget as costs are designated as variable or fixed. a. True b. False 21)A static budget is prepared for only one level of sales volume. a. True b. False 22)A flexible budget summarizes revenues and costs for various levels of sales volume within a relevant range. a. True b. False 23)The sales volume variance is the difference between the expected results in the flexible budget for the actual units sold and the static budget. a. True b. False 24)The flexible budget variance is the difference between the actual results and the expected results in the flexible budget for the actual units sold. a. True b. False 25)A standard is a sales price, cost, or quantity that is expected under normal conditions. a. True b. False 26)Setting standard costs is a function of the company's production department and does not require input from other departments. a. True b. False 27)A standard cost system helps management set performance standards. a. True b. False 28)An efficiency variance measures how well a company keeps unit costs of material and labor inputs within standards. a. True b. False 29)A cost variance measures the difference in quantities of actual inputs used and the standard quantity of inputs allowed for the actual number of units produced. a. True b. False 30)Only unfavorable variances should be investigated, if substantial, to determine their causes. a. True b. False 31)Favorable and unfavorable variances are netted together in the same way debits and credits are. a. True b. False 32)Unfavorable variances are subtracted from each other to arrive at a favorable variance. a. True b. False 33)If both favorable and unfavorable variances exist, the variances are subtracted from each other. The variance is determined to be favorable or unfavorable based on which one is the larger amount. a. True b. False 34)A direct labor cost variance is unfavorable if the employer pays workers more per hour than budgeted. a. True b. False 35)In a standard cost system, the standard overhead allocation rate replaces the predetermined overhead allocation rate but the concept is the same. a. True b. False 36)In a standard cost system, the manufacturing overhead allocated to production equals the standard overhead allocation rate multiplied by the standard quantity of the allocation base allowed for expected output. a. True b. False 37)The direct materials cost and efficiency variances make up the total direct materials variance. a. True b. False 38)The total production cost flexible budget variance is obtained by adding direct labor efficiency variance and fixed overhead volume variance. a. True b. False 39)When evaluating variances, exceptions can be expressed as a percentage of a budgeted amount or a dollar amount. a. True b. False 40)When using management by exception, managers investigate only those variances that are unfavorable. a. True b. False Multiple choice questions, worth 2pts each: To maximize your points please show ALL work 80 41) Which of the following statements is true of absorption costing? A) It considers variable selling and administrative costs as product costs. B) It considers fixed selling and administrative costs as product costs. C) It considers fixed manufacturing overhead cost as product costs. D) It considers variable manufacturing overhead cost as period costs. 42) Which of the following is true of the traditional format of the income statement? A) It is prepared under the variable costing method. B) It shows contribution margin as a line item. C) It is not allowed under GAAP. D) It is prepared under the absorption method. 43) Unit product cost calculations using absorption costing do not include ________. A) fixed manufacturing overhead B) variable manufacturing overhead C) variable selling and administrative costs D) direct materials 44) In its first year of business, Smith, Inc. produced and sold 600 units. If Smith uses variable costing, ________. A) its operating income for the period will be higher than under absorption costing B) its operating income for the period will be lower than under absorption costing C) its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing D) its operating income will be the same as under absorption costing 45) Flexlux, Inc. reports the following information: Units produced Units sold Sales price Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative costs Fixed selling and administrative costs 520units 520units $110per unit $40per unit $25per unit $30per unit $14,000per year $15per unit $25,000per year What is the unit product cost using variable costing? A) $110 B) $92 C) $95 D) $15 46) When there is no beginning Finished Goods Inventory and all the goods that are produced are sold, the operating income ________. A) will be higher under absorption costing than variable costing B) will be lower under absorption costing than variable costing C) will be higher than the gross profit under variable costing D) will be the same for both absorption costing and variable costing 47) When production is greater than sales, the operating income will be higher under absorption costing than variable costing. Assume zero beginning and ending inventories. Which of the following gives the correct reason for the above statement? A) All costs incurred have been recorded as expenses. B) A portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account. C) All selling and administrative expenses have been recorded as period costs. D) Fixed manufacturing costs have not been considered when calculating the operating profits. 48) Frittata, Inc. started the year with 200 units in the Finished Goods Inventory account. It produced 600 units during the year and sold 800 units. If Frittata uses variable costing, ________. A) its operating income for the period will be higher than under absorption costing B) its operating income for the period will be lower than under absorption costing C) its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing D) its operating income will be the same as under absorption costing 49) In absorption costing, fixed manufacturing overhead is expensed ________. A) when all the other non-manufacturing fixed costs are expensed B) when the product is sold C) at the end of the period in which it is paid D) when the units are produced 50) Volplex, Inc. produces paper and office supplies and uses the just-in-time inventory system. Currently, the company is using variable costing. Which of the following is true of the effect of costing systems on the financial results of Volplex? A) Its operating income will be significantly higher if the company uses absorption costing instead of variable costing. B) Its operating income will be significantly lower if the company uses absorption costing instead of variable costing. C) Its operating income will vary a little if the company uses absorption costing instead of variable costing. D) Its operating income will be negative if the company uses absorption costing instead of variable costing. 51) For which of the following decisions is absorption costing most appropriate? A) decisions related to using the sales mix to maximize profitability B) decisions related to controlling short-term costs C) decisions related to setting sales prices in the long run D) decisions related to increasing contribution margin 52) Peter Newton, a production supervisor at BeThink, Inc., uses variable costing for any cost control decisions that he has to make. Which of the following is the reason for his choice? A) Fixed costs are not relevant in the long run. B) Only variable costs are controllable in the long and short run. C) Absorption costing is not relevant for long-run decisions. D) Lower management usually does not have control over most fixed costs. 53) When determining the product costs for long-term planning, ________. A) the research and development cost of the product should be ignored B) variable costing is more appropriate C) absorption costing is more appropriate D) the selling and administrative expenses should be ignored 54) The budget process is a loop that consists of ________. A) planning, acting, and controlling B) developing strategies, planning, acting, and controlling C) developing strategies, planning, and acting D) developing strategies, acting, and controlling 55) Which of the following is an example of the planning function of the budgeting process? A) A budget demands integrated input from different business units and functions. B) Employees are motivated to achieve the goals set by the budget. C) Budget figures are used to evaluate the performance of managers. D) The budget outlines a specific course of action for the coming period. 56) Which of the following is an example of the coordination and communication function of the budgeting process? A) A budget demands integrated input from different business units and functions. B) Employees are motivated to achieve the goals set by the budget. C) Each department acts independently because the department manager will be evaluated on actual departmental results. D) A budget adjustment in one department will have no effect on other departments. 57) An intentional understatement of expected revenues or overstatement of expected expenses by managers in order to have a favorable performance evaluation is known as ________. A) benchmarking B) appropriation C) budgetary slack D) variance analysis 58) Which of the following statements is true of the operating budget? A) It is a part of the financial budget. B) It includes the capital expenditures budget. C) It includes the sales budget. D) Its final component is the cash budget. 59) Which of the following is true of the sales budget? A) It provides sales data that is used to prepare financial statements for external reporting purposes. B) It captures the variable and fixed expenses of the business. C) It is used in the production budget. D) It shows the cost of expected production in a period. 60) Which of the following describes the production budget? A) It aids in planning to ensure the company has adequate inventory and cash on hand. B) It provides the quantity of finished goods to be produced during a budget period. C) It depicts the breakdown of sales on the basis of terms and conditions of collection of sales revenue. D) It helps in planning to ensure the business has adequate cash. 61) The direct materials budget is prepared using information from the ________ budget. A) cash B) master C) capital expenditure D) production 62) The budgeted production of Taurus, Inc. is 13,000 units per month. Each unit requires 30 minutes of direct labor to complete. The direct labor rate is $80 per hour. Calculate the budgeted cost of direct labor for the month. (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.) A) $520,000 B) $195,000 C) $1,040,000 D) $34,667 63) A company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. The balance of Accounts Payable can be taken from the ________. A) inventory, purchases, and cost of goods sold budget B) schedule of cash payments C) direct materials budget D) selling and administrative expenses budget 64) The budgeted income statement________. A) reports cash paid for purchases of direct materials B) includes amounts from the sales, cost of goods sold, cash, and capital expenditures budgets C) is accrual-based D) does not include depreciation expense 65) Zale, Inc. has provided the following extracts from their budget for the first quarter of the forthcoming year: Jan Sales (20% cash) Feb March $1,000,00 $500,000 $750,000 0 The company collects 70% of credit sales in the same month and the balance in the next month. Calculate the collections from the customers for the month of February. A) $570,000 B) $540,000 C) $690,000 D) $750,000 66) Allen Company manufactures staplers. The budgeted sales price is $14.00 per stapler, the variable costs are $3.00 per stapler, and budgeted fixed costs are $10,000. What is the budgeted operating income for 4,300 staplers? A) $47,300 B) $37,300 C) $60,200 D) $12,900 67) Underwater Sports Equipment Company projected sales of 79,000 units at a unit sales price of $12 for the year. Actual sales for the year were 75,000 units at $14 per unit. Variable costs were budgeted at $3 per unit, and the actual amount was $5 per unit. Budgeted fixed costs totaled $387,000, while actual fixed costs amounted to $450,000. What is the flexible budget variance for variable costs? A) $158,000 unfavorable B) $150,000 unfavorable C) $150,000 favorable D) $158,000 favorable Hint: Flexible budget variance for variable costs 68) Which of the following best describes a standard? A) a sales price, cost, or quantity that is expected under normal conditions B) costs incurred to produce a product C) budgeted amount for total product cost D) actual sales price, cost, or quantity 69) A company is setting its direct materials and direct labor standards for its leading product. Direct material costs from the supplier are $9 per square foot, net of purchase discount. Freight-in amounts to $0.30 per square foot. Basic wages of the assembly line personnel are $19 per hour. Payroll taxes are approximately 23% of wages. How much is the direct labor cost standard per hour? (Round your answer to the nearest cent.) A) $4.37 B) $19.00 C) $23.37 D) $32.37 Hint: Direct labor cost standard = Basic wages + Payroll taxes 70) Which of the following is an example of a direct materials cost standard? A) $40 per direct labor hour B) 50 square feet per unit C) $0.95 per square foot D) 6 direct labor hours per unit 71) Which of the following is an example of a direct labor efficiency standard? A) $20 per direct labor hour B) 50 square feet per unit C) $0.95 per square foot D) 6 direct labor hours per unit 72) Which of the following is the correct formula for measuring a cost variance? A) Cost Variance = (Actual Cost + Standard Cost) / Actual Quantity B) Cost Variance = (Actual Cost - Standard Cost) Actual Quantity C) Cost Variance = (Actual Cost + Standard Cost) + Actual Quantity D) Cost Variance = (Actual Cost - Standard Cost) - Actual Quantity 73) Which of the following will result in an unfavorable direct materials efficiency variance? A) when the actual cost per unit of direct materials exceeds the standard cost of direct materials B) when the actual cost per unit of direct materials is less than the standard cost per unit of direct materials C) when the actual quantity of direct materials used per unit exceeds the standard quantity of direct materials allowed per unit D) when the actual quantity of direct materials used per unit is less than the standard quantity of direct materials allowed per unit 74) What does a favorable direct materials cost variance indicate? A) The actual quantity of direct materials used was less than the standard quantity. B) The actual cost of direct materials purchased was less than the standard cost of direct materials purchased. C) The actual cost of direct materials purchased was greater than the standard cost of direct materials purchased. D) The actual quantity of direct materials used was greater than the standard quantity. 75) SeaKist Marine Stores Company manufactures decorative fittings for luxury yachts, which require highly skilled labor, and special metallic materials. SeaKist uses standard costs to prepare its flexible budget. For the first quarter of 2016, direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 1.5 pounds per unit; $4 per pound Labor: 2 hours per unit; $18 per hour During the first quarter, SeaKist produced 5,000 units of this product. At the end of the quarter, an examination of the direct materials records revealed that the company used 7,000 pounds of direct materials. The direct materials efficiency variance was $2,000 F. Which of the following is a logical explanation for this variance? A) The company used fewer labor hours than allowed by the standards. B) The company paid a lower cost per hour for labor than allowed by the standards. C) The company used a lower quantity of direct materials than was allowed by the standards. D) The company paid a lower cost for the direct materials than allowed by the standards. 76) Which of the following will result in an unfavorable direct labor cost variance? A) when actual direct labor hours exceed standard direct labor hours B) when actual direct labor hours are less than standard direct labor hours C) when the actual direct labor cost per hour exceeds the standard direct labor cost per hour D) when the actual direct labor cost per hour is less than the standard direct labor cost per hour 77) The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with the factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This would produce a(n) ________. A) favorable direct materials cost variance B) unfavorable direct labor cost variance C) unfavorable direct labor efficiency variance D) favorable direct materials efficiency variance 78) Which of the following is not a flexible budget variance? A) total fixed overhead variance B) total variable overhead variance C) total direct materials variance D) total direct labor variance 79) The total variable overhead variance is obtained by adding variable overhead cost variance and ________. A) total manufacturing overhead variance B) total direct labor variance C) fixed overhead cost variance D) variable overhead efficiency variance 80) The management technique whereby managers concentrate on results that are outside the accepted parameters is called management by ________. A) variance B) standard C) exception D) budget Essay Problems: Worth 10 pts each. (Please complete all problems to maximize your points and show all work) I have provided multiple hints for you to help with the process. 40 81) Welcome Services, Inc. provides catering services. The company has three segments: Standard, Deluxe, and Premium. The company provides the following data for its three segments for the month of July: Standard Deluxe Premium No. of customers 30 20 40 Service revenue $9,000 $8,200 $8,600 Variable costs $5,500 $3,800 $4,200 The total fixed costs for the month amounts to $2,500. Requirements: a) Calculate the contribution margin ratio for each business segment. b) Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment. Answer: Standard Deluxe Premium Service revenue _______ _______ ______ Variable costs _______ _______ ______ Contribution margin _______ _______ ______ Fixed cost Operating income Contribution margin ratio _______ ______ ______ Service revenue per customer_______ ______ ______ Variable cost per customer _______ ______ ______ Contribution margin per customer_____________ ______ 82) Star Moving Systems, Inc. has provided the following details for direct materials purchased on account in different months. Jan Feb March April May June $35,000 28,000 34,000 39,000 32,000 29,000 The terms of payment offered by the suppliers are to pay 70% in the month of purchase and 30% in the following month. Calculate the payments on account made during the first six months. Answer: Jan Feb March April May June Purchases on account: $35,000$28,000$34,000 $39,000 $32,000 $29,000 Cash payments to suppliers: In the month of purchase (70%)_____________________________ _____ In the next month: (30%) ______ ______ ______ ______ _____ Total payments to suppliers_______________________________ ______ 83) Morag Manufacturing Company's budgeted income statement includes the following data: Sales Commission expense: 15% of sales Salaries expense Miscellaneous expense: 4% of sales Rent expense Utilities expense Insurance expense Depreciation expense Mar Apr May Jun $320,00 $360,00 0$340,000 0$380,000 48,000 50,000 51,000 50,000 54,000 50,000 57,000 50,000 12,800 4,000 2,000 2,100 5,000 13,600 4,000 2,000 2,100 5,000 14,400 4,000 2,000 2,100 5,000 15,200 4,000 2,000 2,100 5,000 The budget assumes that 60% of commission expenses are paid in the month in which they are incurred and the remaining 40% are paid one month later. In addition, 50% of salaries expenses are paid in the month in which they are incurred, and the remaining 50% are paid one month later. Miscellaneous expenses, rent expense, and utility expenses are assumed to be paid in the same month in which they are incurred. Insurance was prepaid for the year on January 1. Prepare a schedule of cash payments for selling and administrative expenses for the quarter ending June 30. 84) Complete the following table: Variance How is the variance calculated? How does the variance arise? Flexible budget Sales volume 85) For each of the following variances, state which manager is most likely to be responsible for the variance. Variance Responsible Manager Direct Materials Cost Direct Labor Efficiency Variable Overhead Efficiency