Question 1

Consider the following portion of a segmented income statement for the year just ended. Assume that the fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. $\begin{array}{lr}&\text { Division } X\
\text { Sales } & \$ 100,000 \
\text { Variable manufacturing costs } & 60,000 \
\text { Gross profit } & \$ 40,000 \
\text { Fixed expenses (direct and allocated) } & 50,000 \
\text { Operating income (loss) } & \$(10,000)
\end{array}$
What would be the effect on the firm's operating income if Division X were discontinued?

Accepted Answer

Discontinuing Division X would eliminate its $40,000 gross profit (sales minus variable costs), but it would also eliminate its $30,000 direct fixed expenses. The net effect is a decrease in operating income of $10,000, which is the current operating loss of Division X. The allocated fixed expenses would presumably remain, as they are not directly tied to Division X's operations.

Question 2

The following information pertains to Cumberland Corporation: $$\begin{array} { l r } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending inventory } & 6,000 \text { units } \
\text { Direct labor per unit } & \$ 20 \
\text { Direct materials per unit } & 16 \
\text { Variable overhead per unit } & 4 \
\text { Fixed overhead per unit } & 10 \
\text { Variable selling costs per unit } & 12 \
\text { Fixed selling costs per unit } & 16
\end{array}$$ What is the value of ending inventory using the absorption costing method?

Accepted Answer

Under the absorption costing method, the value of ending inventory includes direct materials, direct labor, variable overhead, and fixed overhead per unit. The calculation is as follows: (Direct materials + Direct labor + Variable overhead + Fixed overhead) * Ending inventory units = ($16 + $20 + $4 + $10) * 6,000 units = $50 * 6,000 = $300,000.

Question 3

The Crested Butte Company recorded the following data for a product line: $$\begin{array} { l r } 
\text { Sales } & \$ 250,000 \
\text { Variable manufacturing expenses } & 50,000 \
\text { Direct fixed manufacturing expenses } & 37,500 \
\text { Variable selling and administrative expenses } & 25,000 \
\text { Direct fixed selling and admin. expenses } & 30,000
\end{array}$$
What is the segment margin of the product line?

Accepted Answer

The segment margin is calculated as Sales minus all variable expenses and direct fixed expenses. So, $250,000 - $50,000 - $25,000 - $37,500 - $30,000 = $107,500.

Question 4

Franklin Company's expected sales were 2,000 units at $100 per unit. During 2018, it had actual sales of 1,800 units at $110 per unit. Budgeted variable costs were $60 per unit.
What is Franklin's total sales variance?

Accepted Answer

The answer of Franklin Company's expected sales were 2,000 units...

Question 5

Taylor Company's budgeted sales were 10,000 units at $200 per unit. Actual sales were 9,200 units at $210 per unit.
Taylor's sales volume variance is

Accepted Answer

The answer of Taylor Company's budgeted sales were 10,000 units...

Question 6

Taylor Company's budgeted sales were 10,000 units at $200 per unit. Actual sales were 9,200 units at $210 per unit.
Taylor's sales price variance is

Accepted Answer

The sales price variance is calculated as (Actual Price - Budgeted Price) * Actual Quantity. Here, it is ($210 - $200) * 9,200 = $10 * 9,200 = $92,000 Favorable, because the actual price is higher than the budgeted price.

Question 7

Franklin Company's expected sales were 2,000 units at $100 per unit. During 2018, it had actual sales of 1,800 units at $110 per unit. Budgeted variable costs were $60 per unit. What is Franklin's sales price variance?

Accepted Answer

The sales price variance is calculated as the difference between the actual price and the budgeted price, multiplied by the actual quantity sold. Here, it's (110 - 100) * 1,800 = $18,000 Favorable, because the actual price is higher than the budgeted price.

Question 8

Division B earns a contribution margin of $200,000 and has a divisional margin of $70,000. If Division B is closed, all of the direct divisional expenses and $110,000 of common expenses can be eliminated. These facts indicate that closing the division will cause the firm's operating income to

Accepted Answer

The answer of Division B earns a contribution margin of...

Question 9

Sarandon Company has the following information pertaining to its two divisions for 2018: $\begin{array}{lrr}&\text { Division } A & \text { Division } B\
\text { Variable selling and admin. expenses } & \$ 35,000 & \$ 45,000 \
\text { Direct fixed manufacturing expenses } & 17,500 & 50,000 \
\text { Sales } & 100,000 & 200,000 \
\text { Direct fixed selling and admin. expenses } & 15,000 & 35,000 \
\text { Variable manufacturing expenses } & 20,000 & 50,000
\end{array}$
Common expenses are $12,000 for 2018.
What is the segment margin for Division B?

Accepted Answer

The answer of Sarandon Company has the following information pertaining...

Question 10

Deep Pit Mining mines three products. Gold ore sells for $1,000 per ton, variable costs are $600 per ton, and fixed mining costs are $250,000. The segment margin for 2018 was $(100,000). The management of Deep Pit Mining was considering dropping the mining of gold ore. Only one-half of the fixed expenses are direct and would be eliminated if the segment was dropped.
What were the sales (in tons) for 2018?

Accepted Answer

Given that the segment margin for 2018 was $-$100,000$, and knowing that only half of the fixed expenses (\$250,000/2 = \$125,000) would be eliminated if the segment was dropped, we can calculate the contribution margin per ton as the selling price per ton (\$1,000) minus the variable cost per ton (\$600), which equals \$400. The remaining fixed costs (\$125,000) plus the segment loss (\$100,000) equals \$225,000, which needs to be covered by the contribution margin. Dividing \$225,000 by the contribution margin per ton (\$400) gives us the sales in tons, which is 562.5 tons. However, this calculation does not align with the provided options, indicating a mistake in my explanation. Let's correct the approach:The correct approach involves understanding that the segment margin is calculated as total sales minus variable costs minus avoidable (or direct) fixed costs. Given the segment margin is $-$100,000$, and knowing that only half of the fixed expenses are direct and would be eliminated if the segment was dropped, we need to find the sales in tons that would lead to this scenario.The correct calculation should focus on the relationship between sales, variable costs, and the portion of fixed costs that affect the segment margin. However, without directly using the segment margin in the calculation, we should reconsider the approach based on the information given and the options provided.Given the mistake in the initial explanation, let's simplify the approach to fit the options provided:The correct calculation involves determining the sales in tons based on the information given about the segment's profitability and costs. The segment margin of $-$100,000$ indicates a loss, and with the given costs and sales price, we can infer the number of tons sold to result in such a financial outcome. However, without a direct calculation provided in the initial explanation that aligns with the options, the correct answer should be deduced based on the correct interpretation of the financial data related to sales, variable costs, and fixed costs. The initial mistake in calculation led to an incorrect process of elimination. Revisiting the calculation with accurate data and assumptions is necessary to identify the correct number of tons sold.

Question 11

The contribution margin variance is the difference between the actual contribution margin and the:

Accepted Answer

The contribution margin variance is the difference between the actual contribution margin and the budgeted contribution margin. This variance is important for evaluating how well a business is meeting its financial goals and can help identify areas for improvement.

Question 12

Burlywood Company has two divisions with the following segment margins for the current year: Rosewood, $170,000; Sandalwood, $230,000. Common expenses of the company are $36,000. Calculate Burlywood Company's net income.

Accepted Answer

The net income is calculated by adding the segment margins of both divisions and then subtracting the common expenses: $170,000 (Rosewood) + $230,000 (Sandalwood) - $36,000 (Common expenses) = $364,000.

Question 13

Taylor Company's budgeted sales were 10,000 units at $200 per unit. Actual sales were 9,200 units at $210 per unit.
Taylor's total sales variance is

Accepted Answer

Total sales variance = (Actual sales quantity x Actual price) - (Budgeted sales quantity x Budgeted price)
= (9,200 x $210) - (10,000 x $200)
= $1,932,000 - $2,000,000
= $68,000 (U)

Question 14

The Crested Butte Company recorded the following data for a product line: $$\begin{array} { l r } 
\text { Sales } & \$ 250,000 \
\text { Variable manufacturing expenses } & 50,000 \
\text { Direct fixed manufacturing expenses } & 37,500 \
\text { Variable selling and administrative expenses } & 25,000 \
\text { Direct fixed selling and admin. expenses } & 30,000
\end{array}$$
What is the contribution margin of the product line?

Accepted Answer

Contribution margin = Sales - Variable manufacturing expenses - Variable selling and administrative expenses= $250,000 - $50,000 - $25,000= $175,000

Question 15

The following information pertains to Cumberland Corporation: $$\begin{array} { l r } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending inventory } & 6,000 \text { units } \
\text { Direct labor per unit } & \$ 20 \
\text { Direct materials per unit } & 16 \
\text { Variable overhead per unit } & 4 \
\text { Fixed overhead per unit } & 10 \
\text { Variable selling costs per unit } & 12 \
\text { Fixed selling costs per unit } & 16
\end{array}$$ Absorption costing net income would be how much greater or less than the variable costing net income?

Accepted Answer

The answer of The following information pertains to Cumberland Corporation:...

Question 16

The budgeted contribution margin of two products is $1,000 the actual contribution margin is $500 and the total variable expenses are $750. The contribution margin variance is:

Accepted Answer

The contribution margin variance is the difference between the budgeted contribution margin and the actual contribution margin.

Budgeted contribution margin = $1,000
Actual contribution margin = $500
Contribution margin variance = $1,000 - $500 = $500 (U)

The total variable expenses are not relevant to the calculation of the contribution margin variance.

Question 17

Franklin Company's expected sales were 2,000 units at $100 per unit. During 2018, it had actual sales of 1,800 units at $110 per unit. Budgeted variable costs were $60 per unit.
What is Franklin's sales volume variance?

Accepted Answer

The answer of Franklin Company's expected sales were 2,000 units...

Question 18

The contribution margin variance is favorable if the budgeted contribution margin is less than the:

Accepted Answer

The contribution margin variance is favorable when the actual contribution margin exceeds the budgeted contribution margin, indicating that the company has generated more profit per unit than anticipated.

Question 19

The difference between actual volume sold and expected volume sold multiplied by expected price is called the:

Accepted Answer

The difference between actual volume sold and expected volume sold is the sales volume variance, and when multiplied by the expected price, it gives the total sales variance. The sales price variance measures the difference between the actual price and expected price for each unit sold, while the sales efficiency variance calculates the difference between the actual and expected costs of selling.

Question 20

Sarandon Company has the following information pertaining to its two divisions for 2018: $\begin{array}{lrr}&\text { Division } A & \text { Division } B\
\text { Variable selling and admin. expenses } & \$ 35,000 & \$ 45,000 \
\text { Direct fixed manufacturing expenses } & 17,500 & 50,000 \
\text { Sales } & 100,000 & 200,000 \
\text { Direct fixed selling and admin. expenses } & 15,000 & 35,000 \
\text { Variable manufacturing expenses } & 20,000 & 50,000
\end{array}$ Common expenses are $12,000 for 2018.
What is the operating income for Sarandon Company?

Accepted Answer

To calculate the operating income for Sarandon Company, we need to sum up all the revenues and subtract all the expenses. For both divisions combined, the total sales (revenues) are $100,000 + $200,000 = $300,000. The total expenses include variable selling and admin expenses ($35,000 + $45,000), direct fixed manufacturing expenses ($17,500 + $50,000), direct fixed selling and admin expenses ($15,000 + $35,000), variable manufacturing expenses ($20,000 + $50,000), and common expenses ($12,000). Summing up all expenses gives us $279,500. Subtracting the total expenses from the total revenues gives us an operating income of $300,000 - $279,500 = $20,500.

Quiz 18: Pricing and Profitability Analysis

Franklin Company's expected sales were 2,000 units at $100 per unit. During 2018, it had actual sales of 1,800 units at $110 per unit. Budgeted variable costs were $60 per unit. What is Franklin's total sales variance?

Taylor Company's budgeted sales were 10,000 units at $200 per unit. Actual sales were 9,200 units at $210 per unit. Taylor's sales volume variance is

Taylor Company's budgeted sales were 10,000 units at $200 per unit. Actual sales were 9,200 units at $210 per unit. Taylor's sales price variance is