1. North Shore Clothing Company provided the following manufacturing costs for the month of June.

Direct labor cost $138,000

Direct materials cost 85,000
Equipment depreciation
(straight-line) 24,000
Factory insurance 19,000
Factory manager's salary 11,000
Janitor's salary 3,000
Packaging costs 19,200
Property taxes 14,000

From the above information, calculate North Shore's total variable costs.
A) $313,200
B) $71,000
C) $242,200
D) $223,000
Answer: C
Explanation: C)
Direct materials cost $85,000
Direct labor cost 138,000
Packaging costs 19,200
Total variable costs $242,200

2. A cellphone service provider charges $5.00 per month and $0.20 per minute per call. If a customer's
current bill is $55, how many minutes did the customer use? (Round any intermediate calculations
and your final answer to the nearest whole minute.)
A) 275 minutes
B) 300 minutes
C) 250 minutes
D) 225 minutes
Answer: C
Explanation: C)
Current bill 55
Less monthly charges (5.00)
Call charges (A) 50.00
Charge per minute per call (B) 0.20
Number of minutes used (A) / (B) 250

3. Jose Foster, a manager of Prettiest Pooch, Inc., was reviewing the water bills of a dog daycare and
spa. He determined that its highest and lowest bills of $3,800 and $2,000 were incurred in the months
of May and November, respectively. If 600 dogs were washed in May and 200 dogs were washed in
November, what was the fixed cost associated with the company's water bill? (Round any
intermediate calculations to the nearest cent and your final answer to the nearest dollar.)
A) $2,000
B) $3,800
C) $1,100
D) $1,800
Answer: C
Explanation: C) Variable cost per unit = Change in total cost / Change in volume of activity
Variable cost per unit = ($3,800 - $2,000) / (600 dogs - 200 dogs) = $1,800 / 400 dogs
Variable cost per unit = $4.50 per dog

Number of dogs washed in May 600

Variable costs incurred in May ($4.50 per dog × 600 dogs) $2,700.00
Fixed costs incurred in May ($3,800 - $2,700.00) $1,100

4. Left Hand, Inc. has fixed costs of $400,000. Total costs, both fixed and variable, are $550,000 when
40,000 units are produced. Calculate the total costs if the volume increases to 64,000 units. (Round
any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
A) $950,000
B) $150,000
C) $640,000
D) $550,000
Answer: C
Explanation: C)
Total costs $550,000
Less: fixed costs (400,000)
Variable costs (A) $150,000
Number of units (B) 40,000
Variable cost per unit (A) / (B) $3.75

Number of units after increase in production 64,000

Variable costs of production 240,000
Fixed costs 400,000
Total costs after increase in production $640,000

5. Anthony Chemicals, Inc. has fixed costs of $34,000 per month. The highest production volume during
the year was in January when 120,000 units were produced, 72,000 units were sold, and total costs of
$610,000 were incurred. In June, the company produced only 54,000 units. What was the total cost
incurred in June? (Round any intermediate calculations to the nearest cent and your final answer to
the nearest dollar.)
A) $259,200
B) $293,200
C) $610,000
D) $644,000
Answer: B
Explanation: B)
Total costs $610,000
Less: fixed costs (34,000)
Variable costs (A) $576,000
Number of units (B) 120,000
Variable cost per unit (A) / (B) $4.80

Number of units produced in June 54,000

Variable costs incurred in June $259,200=4.8*54，000
Fixed costs 34,000
Total cost in June $293,200

6. The highest value of total cost was $800,000 in June for Mantilla Beverages, Inc. Its lowest value of
total cost was $510,000 in December. The company makes a single product. The production volume in
June and December were 13,000 and 8,000 units, respectively. What is the fixed cost per month?
(Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
A) $510,000
B) $290,000
C) $46,000
D) $8,000
Answer: C
Explanation: C)
Variable cost per unit = Change in total cost / Change in volume of activity
Variable cost per unit = (Highest cost - Lowest cost) / (Highest volume - Lowest volume)

Change in total cost (A) $290,000

Change in volume of activity (B) 5,000
Variable cost per unit (A / B) $58.00

Total costs for June

Total variable costs for June (58.00 × 13,000) 754,000
Fixed costs for June ($800,000 - 754,000) $46,000

7. The phone bill for a company consists of both fixed and variable costs. Refer to the four-month data
below and apply the high-low method to answer the question. (Round any intermediate calculations
to the nearest cent, and your final answer to the nearest dollar.)

Minutes Total Bill

January 460 $3,000
February 200 $2,675
March 180 $2,630
April 320 $2,840

What is the fixed portion of the total cost?

A) $607
B) $370
C) $2,393
D) $2,630
Answer: C
Explanation: C) Variable cost per unit = Change in total cost / Change in volume of activity
Variable cost per unit = (Highest cost - Lowest cost) / (Highest volume - Lowest volume)
Change in total cost ($3,000 - $2,630) $370
Change in minutes (460 - 180) 280
Variable cost per minute ($370 / 280) $1.32

Variable cost for January = 460 minutes × $1.32 per minute = $607
Total fixed costs = Total mixed cost - Total variable cost
Total fixed costs = $3,000 - $607 = $2,393

8. Gainesville Company has provided the following information:

Sales price per unit $56

Variable cost per unit 12
Fixed costs per month $12,000

Calculate the contribution margin ratio. (Round your answer to two decimal places.)
A) 21.43%
B) 82.35%
C) 64.71%
D) 78.57%
Answer: D
Explanation: D) Contribution margin ratio = Contribution margin / Net sales revenue

Sales price $56

Less: variable cost (12)
Contribution margin $44

Contribution margin ratio = ($44 / $56) × 100 = 78.57%

9. The Perfect Fit Company sells hand sewn shirts at $58.00 per shirt. It incurs monthly fixed costs of
$8,000. The contribution margin ratio is calculated to be 30%. What is the variable cost per shirt?
(Round any intermediate calculations and your final answer to two decimal places.)
A) $40.60 per shirt
B) $75.40 per shirt
C) $58.00 per shirt
D) $17.40 per shirt
Answer: A
Explanation: A)
Contribution margin ratio 30%
Sales price per shirt $58.00
Contribution margin = $58.00 × 30% 17.40
Variable cost per shirt $40.60

10. Hisham was a professional classical guitar player until a motorcycle accident left him disabled. After
long months of therapy, he hired an experienced luthier and started a small shop to make and sell
 Spanish guitars. The guitars sell for $900, and the fixed monthly operating costs are as follows:

Rent and utilities $800

Wages and benefits to luthier 2,000
Other expenses 474

Hisham's accountant told him about contribution margin ratios, and Hisham understood clearly that for
every dollar of sales, $0.65 went to cover his fixed costs, and anything above that point was profit.

Hisham wishes to earn $4,000 of operating profit each month. Calculate the number of guitars Hisham
will need to sell to achieve the target profit. (Round your answer up to the nearest whole guitar.)
A) 3 guitars
B) 12 guitars
C) 4 guitars
D) 13 guitars
Answer: D
Explanation: D) Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Contribution margin per unit = $900 × 0.65 = $585
Total fixed costs = $800 + $2,000 + $474 = $3,274
Target profit = $4,000
Required sales in units = ($3,274 + $4,000) / $585 = 13 guitars

11. Ethan was a professional classical guitar player until a motorcycle accident left him disabled. After
long months of therapy, he hired an experienced luthier and started a small shop to make and sell
Spanish guitars. The guitars sell for $600, and the fixed monthly operating costs are as follows:

Rent and utilities $600

Wages and benefits to luthier 2,200
Other expenses 470

Ethan's accountant told him about contribution margin ratios, and Ethan understood clearly that for
every dollar of sales, $0.60 went to cover his fixed costs, and anything above that point was profit.
Ethan wishes to earn $5,000 of operating profit each month. Calculate the amount of sales revenue
required to achieve the target profit. (Round your answer to the nearest dollar.)
A) $5,450
B) $8,175
C) $13,784
D) $20,675
Answer: C
Explanation: C) Required sales in dollars = (Fixed costs + Target profit) / Contribution margin ratio
Contribution margin ratio = 60%
Total fixed costs = $600 + $2,200 + $470 = $3,270
Target profit = $5,000
Required sales in dollars = ($3,270 + $5,000) / 60% = $13,784

12. Young Guns Company, which sells tents, has provided the following information:
Sales price per unit $45
Variable cost per unit 11
Fixed costs per month $12,700

What are the required sales in units for Young to break even? (Round your answer up to the nearest
whole unit.)
A) 227 units
B) 1,155 units
C) 283 units
D) 374 units
Answer: D
Explanation: D) Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Unit contribution margin = Net sales revenue per unit - Variable costs per unit

Sales price $45

Less: variable cost (11)
Contribution margin $34

Required sales in units = ($12,700 + $0) / $34 = 374 units

13. Brad was a professional classical guitar player until a motorcycle accident at left him disabled. After
long months of therapy, he hired an experienced luthier and started a small shop to make and sell
Spanish guitars. The guitars sell for $700 each, and the fixed monthly operating costs are as follows:

Rent and utilities $810

Wages and benefits to luthier 2,520
Other expenses 480

Brad's accountant told him about contribution margin ratios, and Brad understood clearly that for every
dollar of sales, $0.60 went to cover his fixed costs, and anything above that point was profit.

Brad is planning to increase the sales price to $820. What impact will the increase in sales price have on
the breakeven point in units? (Round your answer up to the nearest whole guitar.)
A) It will stay the same.
B) It will go down from 12 to 8 units.
C) It will go up from 8 to 12 units.
D) It will go down from 10 to 8 units.
Answer: D
Explanation: D) Contribution margin per unit = $700 × 0.60 = $420
Total fixed costs = $810 + $2,520 + $480 = $3,810
Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Required sales in units = ($3,810 + 0) / $420 = 10 units
Revised contribution margin = $420 + ($820 - $700) = $420 + $120 = $540
Required sales in units (Revised) = ($3,810 + 0) / $540 = 8 units

14. Allentown Aqua, Inc. has provided the following information for the year.
Units produced 11,000 units
Sales price $400 per unit
Direct materials $20 per unit
Direct labor $35 per unit
Variable manufacturing overhead $70 per unit
Fixed manufacturing overhead $470,000 per year
Variable selling and administration costs $90 per unit
Fixed selling and administration costs $240,000 per year

What is the unit product cost using variable costing?

A) $55
B) $105
C) $125
D) $168
Answer: C
Explanation: C)
Direct materials $20
Direct labor 35
Variable manufacturing overhead 70
Total unit product cost $125

15. Indiana Hot Tubs, Inc. reports the following information for August:

Sales Revenue $650,000

Variable Costs 270,000
Fixed Costs 73,000

Calculate the operating income for August using variable costing.

A) $380,000
B) $577,000
C) $307,000
D) $650,000
Answer: C
Explanation: C)
Sales Revenue $650,000
- Variable Costs 270,000
Contribution Margin 380,000
- Fixed Costs 73,000
Operating Income $307,000
16. Medbam, Inc. has collected the following data. (There are no beginning inventories.):

Units produced 560 units

Units sold 560 units
Sales price $180 per unit
Direct materials $10 per unit
Direct labor $35 per unit
Variable manufacturing overhead $20 per unit
Fixed manufacturing overhead $20,000 per year
Variable selling and administrative costs $15 per unit
Fixed selling and administrative costs $20,000 per year

What is the operating income using absorption costing? (Round any intermediate calculations to the
nearest cent, and your final answer to the nearest dollar.)
A) $44,402
B) $36,002
C) $16,002
D) $24,402
Answer: C
Explanation: C)
Sales Revenue (560 units × $180 per unit) $100,800
Cost of Goods Sold (560 units × $100.71 per unit)* 56,397.60
Gross Profit $44,402

Selling and Administrative Costs

Variable Selling and
Administrative Costs (560 units × $15 per unit) $8,400
Fixed Selling and Administrative Costs 20,000 28,400
Operating Income $16,002
*Cost of Goods Sold, per unit: 10 + 35 + 20 + (20,000 / 560) = 100.71

17. SailFind, Inc. has collected the following data. (There are no beginning inventories.)

Units produced 600 units

Sales price $120 per unit
Direct materials $10 per unit
Direct labor $10 per unit
Variable manufacturing overhead $7 per unit
Fixed manufacturing overhead $16,400 per year
Variable selling and administrative costs $7 per unit
Fixed selling and administrative costs $11,700 per year

What is the operating income using variable costing if 500 units are sold?
A) $14,900
B) $43,000
C) $48,300
D) $11,100
Answer: A
Explanation: A)
Sales Revenue $60,000
- Variable Costs* 17,000
Contribution Margin 43,000
- Fixed Costs** 28,100
Operating Income $14,900

Explanation:
* Variable costs = [($10 + $10 + $7 + $7) × 500 units] = $17,000
** Fixed costs = $16,400 + $11,700 = 28,100

18. McFadden, Inc. has collected the following data. (There are no beginning inventories.)

Units produced 700 units

Sales price $150 per unit
Direct materials $30 per unit
Direct labor $10 per unit
Variable manufacturing overhead $10 per unit
Fixed manufacturing overhead $17,300 per year
Variable selling and administrative costs $6 per unit
Fixed selling and administrative costs $17,200 per year

What is the ending balance in Finished Goods Inventory using variable costing if 600 units are sold?
A) $4,000
B) $5,000
C) $2,000
D) $3,000
Answer: B
Explanation: B) Ending Finished Goods Inventory = Unsold units × Total unit product cost* = (700 units
produced - 600 units sold) × $50 = $5,000

* Total unit product cost

Direct materials $30
Direct labor 10
Variable manufacturing overhead 10
Total unit product cost $50

19. Heung, Inc. reports the following information for the year ended December 31:

Units sold 590 units

Sales price $170 per unit
Direct materials $28 per unit
Direct labor $12 per unit
Variable manufacturing overhead $18 per unit
Fixed manufacturing overhead $20 per unit
Variable selling and administrative costs $4 per unit
Fixed selling and administrative costs $12,200 per year

The operating income calculated using variable costing and absorption costing amounted to $9,800 and
$11,000, respectively. There were no beginning inventories. Determine the total fixed manufacturing
overhead that will be expensed under variable costing for the year 2016.
A) $13,000
B) $11,800
C) $28,320
D) $34,220
Answer: A
Explanation: A) Number of units in the ending Fixed Goods Inventory = (Profit using absorption costing
- Profit using variable costing) / Fixed manufacturing overhead per unit =
($11,000 - $9,800) / $20 per unit = 60 units

Number of units produced = Units sold + Ending Inventory - Beginning Inventory

Number of units produced = 590 units + 60 units - 0 = 650 units
Under variable costing, total fixed manufacturing overhead incurred during the period are expensed,
irrespective of the period in which the units are sold.
Therefore, total fixed manufacturing overhead expensed under variable costing =
650 units × $20 per unit = $13,000

20. E-trax, Inc. has provided the following financial information for the year:

Finished Goods Inventory:

Beginning balance, in units 610
Units produced 2,800
Units sold 2,900
Ending balance, in units 510
Production costs:
Variable manufacturing costs per
unit $50
Total fixed manufacturing costs $42,000

What is the unit product cost for the year using absorption costing?
A) $65
B) $82
C) $119
D) $64
Answer: A
Explanation: A)
Variable manufacturing overhead $50
Fixed manufacturing overhead
($42,000 / 2,800 units) 15
Total unit product cost $65
21. 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
Answer: B

22. Caplico Company has prepared the following sales budget:

Month Budgeted Sales

March $400,000
April 207,000
May 241,000
June 248,000

Cost of goods sold is budgeted at 40% of sales, and the inventory at the end of February was $34,000.
Desired inventory levels at the end of each month are 10% of the next month's cost of goods sold. What is
the desired beginning inventory on June 1?
A) $24,800
B) $9,640
C) $96,400
D) $9,920
Answer: D
Explanation: D)
Calculation of beginning inventory on June 1:

23. Norton Manufacturing expects to produce 2,900 units in January and 3,600 units in February. Norton
budgets $20 per unit for direct materials. Indirect materials are insignificant and not considered for
budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on
January 1 is $38,650. Norton desires the ending balance in Raw Materials Inventory to be 10% of the
next month's direct materials needed for production. Desired ending balance for February is $51,100.
What is the cost of budgeted purchases of direct materials needed for January?
A) $58,000
B) $65,200
C) $26,550
D) $25,150
Answer: C
Explanation: C)
Budgeted units to be produced in January 2,900
× Direct materials cost per unit $20
Direct materials needed for production $58,000
+Desired direct materials in ending inventory + 7,200*
= Total direct materials needed $65,200
-Direct materials in beginning inventory - 38,650
=Budgeted purchases of direct materials $26,550
* Desired direct materials in ending inventory = 3,600 × 20 × 10% = 7,200

24. Kapital, Inc. has prepared the operating budget for the first quarter of the year. The company forecast
sales of $45,000 in January, $55,000 in February, and $65,000 in March. Variable and fixed selling and
administrative expenses are as follows:

Variable Expenses: Power cost (20% of sales)

Miscellaneous expenses: (10% of sales)
Fixed Expenses: Salary expense: $6,000 per month
Salaries expense: $5,000 per month
Depreciation expense: $1,400 per month
Power cost/fixed portion: $600 per month
Miscellaneous expenses/fixed portion: $1,200 per month

Calculate total selling and administrative expenses for the month of January.
A) $27,700
B) $33,700
C) $13,500
D) $30,700
Answer: A
Explanation: A) Calculation of total selling and administrative expenses for the month of January:

25. Delleate, Inc. has prepared the following direct materials purchases budget:

Budgeted DM
Month Purchases
June $67,000
July 77,000
August 76,300
September 78,000
October 70,200

All purchases are paid for as follows: 40% in the month of purchase, 50% in the following month, and
10% two months after purchase. Calculate total cash payments made in October for purchases.
A) $67,080
B) $46,630
C) $35,710
D) $74,710
Answer: D
Explanation: D)
Payments in October:
For Oct. purchases
(40% × $70,200) $28,080
For Sept. purchases
(50% × $78,000) 39,000
For Aug. purchases
(10% × $76,300) 7,630
Total cash paid $74,710

26. A manufacturing company's budgeted income statement includes the following data:

Data extracted from budgeted

income statement Mar Apr May Jun
Sales revenue $130,000 $80,000 $130,000 $120,000
Commission expense (15% of
sales) 19,500 12,000 19,500 18,000
Salaries expense 33,000 33,000 33,000 33,000
Miscellaneous expense—5% of
sales 6,500 4,000 6,500 6,000
Rent expense 3,600 3,600 3,600 3,600
Utilities expense 2,300 2,300 2,300 2,300
Insurance expense 2,600 2,600 2,600 2,600
Depreciation expense 4,200 4,200 4,200 4,200

The budget assumes that 60% of commission expenses are paid in the month they are incurred and the
remaining 40% are paid one month later. In addition, 50% of salaries expenses are paid in the same
month, and the remaining 50% are paid one month later. Miscellaneous expenses, rent expense, and
utilities expenses are assumed to be paid in the same month in which they are incurred. Insurance has
been paid in advance for the year on January 1.
Calculate total budgeted cash payments for selling and administrative expenses for the month of April.
A) $52,000
B) $60,500
C) $57,900
D) $64,700
Answer: C
Explanation: C) Payment for selling and administrative expenses for the month of April:
27. Diemans Corp. has provided a part of its budget for the second quarter:

Apr May Jun

Cash collections $40,000 $40,000 $52,000
Cash payments:
Purchases of direct materials 4,500 5,000 7,000
Operating expenses 7,200 7,000 4,500
Capital expenditures 5,000 0 10,000

The cash balance on April 1 is $14,000. Assume that there will be no financing transactions or costs during
the quarter. Calculate the projected cash balance at the end of April.
A) $95,800
B) $54,000
C) $37,300
D) $65,300
Answer: C
Explanation: C)
Apr May Jun
Beginning cash balance $14,000 $37,300 $65,300
Plus: Receipts from customers 40,000 40,000 52,000
Total cash available $54,000 $77,300 $117,300
Less: Payment for purchases of direct
materials 4,500 5,000 7,000
Operating expenses 7,200 7,000 4,500
Capital expenditures 5,000 0 10,000
Ending cash balance $37,300 $65,300 $95,800

28. Louise, Inc. has a cash balance of $20,000 on April 1. The company is now preparing the cash budget
for the second quarter. Budgeted cash collections and payments are as follows:

Apr May Jun

Cash collections $22,000 $22,000 $24,000
Cash payments:
Purchases of direct materials 4,600 5,000 6,800
Operating expenses 6,000 4,600 6,000

There are no budgeted capital expenditures or financing transactions during the quarter. Based on the
above data, calculate the projected cash balance at the end of May.
A) $22,000
B) $53,400
C) $48,400
D) $43,800
Answer: D
Explanation: D)
Apr May Jun
Beginning cash balance $20,000 $31,400 $43,800
Plus: Cash receipts 22,000 22,000 24,000
Cash available $42,000 $53,400 $67,800
Less: Cash payments
Purchases of direct
materials 4,600 5,000 6,800
Operating expenses 6,000 4,600 6,000
Ending cash balance $31,400 $43,800 $55,000

29. Acme, Inc. has prepared its third quarter budget and provided the following data:

Jul Aug Sep

Cash collections $50,000 $39,600 $46,100
Cash payments:
Purchases of direct materials 30,000 21,700 17,600
Operating expenses 12,300 8,000 11,600
Capital expenditures 13,700 24,300 0

The cash balance on June 30 is projected to be $4,100. The company has to maintain a minimum cash
balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may
borrow in increments of $5,000 and has to pay interest every month at an annual rate of 5%. All financing
transactions are assumed to take place at the end of the month. The loan balance should be repaid in
increments of $5,000 whenever there is surplus cash. How much will the company have to borrow at the
end of July?
A) $0
B) $5,000
C) $15,000
D) $10,000
Answer: D
Explanation: D)
30. Stockett, Inc. has prepared its third quarter budget and provided the following data:

Jul Aug Sep

Cash collections $50,000 $39,700 $47,600
Cash payments:
Purchases of direct materials 30,000 22,000 18,000
Operating expenses 12,300 8,700 11,700
Capital expenditures 13,000 24,400 0

The cash balance on June 30 is projected to be $4,500. The company has to maintain a minimum cash
balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may
borrow in increments of $5,000 and has to pay interest every month at an annual rate of 4%. All financing
transactions are assumed to take place at the end of the month. The loan balance should be repaid in
increments of $5,000 whenever there is surplus cash. How much will the company have to borrow at the
end of August?
A) $15,000
B) $5,000
C) $10,000
D) $20,000
Answer: A
Explanation: A)
31. Kevin Couriers Company prepared the following static budget for the year:

Static Budget
Units/Volume 5,000
Per Unit
Sales Revenue $7.00 $35,000
Variable Costs 1.00 5,000
Contribution Margin 30,000
Fixed Costs 3,000
Operating Income/(Loss) $27,000

If a flexible budget is prepared at a volume of 7,800, calculate the amount of operating income. The
production level is within the relevant range.
A) $43,800
B) $27,000
C) $7,800
D) $3,000
Answer: A
Explanation: A)
Kevin Couriers Company
Flexible Budget
For the Year Ended December 31, 20XX

Budgeted
Amounts
Per Unit
Units 7,800
Sales Revenue $7.00 $54,600
Variable Costs 1.00 7,800
Contribution Margin 46,800
Fixed Costs 3,000
Operating Income $43,800

32. The static budget, at the beginning of the month, for Onyx Décor Company, follows:
Static budget:
Sales volume: 1,000 units; Sales price: $70.00 per unit
Variable costs: $32.00 per unit; Fixed costs: $37,900 per month
Operating income: $100

Actual results, at the end of the month, follows:

Actual results:
Sales volume: 970 units; Sales price: $74.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $34,400 per month
Operating income: $3,430

Calculate the flexible budget variance for sales revenue.

A) $4,470 U
B) $4,470 F
C) $3,880 U
D) $3,880 F
Answer: D
Explanation: D)
Flexible Sales
Actual Budget Flexible Volume Static
Results Variance Budget Variance Budget
Units/Volume 970 0 970 30 U $1,000
Sales Revenue* $71,780 $3,880 F $67,900 $2,100 U $70,000
Variable Costs** 33,950 2,910 U 31,040 $960 F 32,000
Contribution Margin $37,830 $970 F $36,860 $1,140 U $38,000
Fixed Costs 34,400 3,500 F 37,900 $0 37,900
Operating
Income/(Loss) $3,430 $4,470 F -$1,040 $1,140 U $100

* Sales price per unit × Units

** Variable cost per unit × Units

The static budget, at the beginning of the month, for Steak Frites Company follows:
Static budget:
Sales volume: 1,100 units; Sales price: $70.00 per unit
Variable costs: $33.00 per unit; Fixed costs: $39,800 per month
Operating income: $900

Actual results, at the end of the month, follows:

Actual results:
33. Sales volume: 995 units; Sales price: $74.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $35,000 per month
Operating income: $3,805
Calculate the sales volume variance for revenue.
A) $4,800 U
B) $7,350 U
C) $3,885 U
D) $3,980 F
Answer: B
Explanation: B)
Flexible Sales
Actual Budget Flexible Volume Static
Results Variance Budget Variance Budget
Units 995 0 995 105 U $1,100
Sales Revenue* $73,630 $3,980 F $69,650 $7,350 U $77,000
Variable Costs** 34,825 1,990 U 32,835 $3,465 F 36,300
Contribution Margin $38,805 $1,990 F $36,815 $3,885 U $40,700
Fixed Costs 35,000 4,800 F 39,800 $0 39,800
Operating
Income/(Loss) $3,805 $6,790 F $(2,985) $3,885 U $900

* Sales price per unit × Units

** Variable cost per unit × Units

34. The California Fitness Company completed the flexible budget analysis for the second quarter, which
is given below.

Flexible Sales
Actual Budget Flexible Volume Static
Results Variance Budget Variance Budget
Units 12,860 0 12,860 1,060 F 11,800
Sales Revenue $62,720 $1,290 U $64,010 $4,010 F $60,000
Variable Costs 27,620 720 U 26,900 $1,700 U 25,200
Contribution Margin $35,100 $2,010 U $37,110 $2,310 F $34,800
Fixed Costs 34,250 250 U 34,000 $0 34,000
Operating Income/(loss) $850 $2,260 U $3,110 $2,310 F $800

Which of the following statements would be a correct analysis of the flexible budget variance for variable
costs?
A) decrease in sales price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs
Answer: B
35. A favorable sales volume variance in variable costs suggests a(n) ________.
A) increase in number of actual units sold when compared to the expected number of units sold
B) decrease in number of actual units sold when compared to the expected number of units sold
C) increase in variable cost per unit
D) decrease in fixed costs
Answer: B

36. City Golf Center reported actual operating income for the current year as $65,000. The flexible budget
operating income for actual volume is $58,000, while the static budget operating income is $59,000.
What is the flexible budget variance for operating income?
A) $7,000 favorable
B) $7,000 unfavorable
C) $1,000 unfavorable
D) $1,000 favorable
Answer: A
Explanation: A) Flexible budget variance for operating income = Actual operating income - Expected
operating income in the flexible

37. Allen Boating Company manufactures special metallic materials and decorative fittings for luxury
yachts that require highly skilled labor. Allen uses standard costs to prepare its flexible budget. For
the first quarter of the year, direct materials and direct labor standards for one of their popular
products were as follows:

Direct materials: 1 pound per unit; $11 per pound

Direct labor: 4 hours per unit; $19 per hour

Allen produced 4,000 units during the quarter. At the end of the quarter, an examination of the direct
materials records showed that the company used 7,500 pounds of direct materials and actual total
materials costs were $99,300.

What is the direct materials efficiency variance?

A) $44,000 U
B) $38,500 U
C) $44,000 F
D) $38,500 F
Answer: B
Explanation: B) Direct materials efficiency variance = (Actual quantity - Standard quantity) × Standard
cost
Direct materials efficiency variance = (7,500 pounds - 4,000 pounds) × $11 per pound = $38,500
Unfavorable

38. Austin Brands Company uses standard costs for its manufacturing division. Standards specify 0.1
direct labor hours per unit of product. At the beginning of the year, the static budget for variable
overhead costs included the following data:
Production volume 6,300 units
Budgeted variable overhead costs $15,000
Budgeted direct labor hours 630 hours

At the end of the year, actual data were as follows:

Production volume 4,200 units

Actual variable overhead costs $15,000
Actual direct labor hours 480 hours

What is the variable overhead cost variance? (Round any intermediate calculations to the nearest cent,
and your final answer to the nearest dollar.)
A) $15,000 U
B) $15,000 F
C) $3,571 U
D) $4,687 F
Answer: C

Explanation: C) Variable overhead cost variance = (Actual cost - Standard cost) × Actual quantity
Standard cost per direct labor hour = Budgeted variable overhead costs / Budgeted direct labor hours =
$15,000 / 630 direct labor hours = $23.81 per direct labor hour

Actual cost per direct labor hour = Actual variable overhead costs / Actual direct labor hours = $15,000 /
480 direct labor hours = $31.25 per direct labor hour

Variable overhead cost variance = ($31.25 - $23.81) × 480 units = $3,571 Unfavorable