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Chapter 13 Extra MC Questions

James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

Chapter 13 | MAAW's Textbook Table of Contents

The following information is needed for the next eleven questions. The Palm Company was established at the beginning of the year to produce a single product with the following budgeted sales price and costs. Note, there are no beginning inventories.

Sales price per unit $120
Direct material costs per unit 35
Direct labor costs per unit 10
Variable factory overhead costs per unit 20
Fixed factory overhead costs per unit = $500,000/12,500 units 40
Variable selling and administrative costs per unit 5
Total fixed selling and administrative costs 100,000

A plant wide overhead rate is based on planned production of 12,500 units as indicated above. Budgeted sales equals 11,000 units.

1. Palm Company's budgeted net income or loss (before taxes) using absorption costing is

a. $2,500
b. $10,000
c. -$50,000
d. -$147,500
e. None of the above.

2. Palm Company's budgeted net income or loss (before taxes) using direct or variable costing is

a. -$147,500
b. -$95,000
c. $10,000
d. $70,000
e. -$50,000

3. Palm Company's budgeted net income or loss (before taxes) using throughput costing is

a. -$147,500
b. -$95,000
c. $10,000
d. $70,000
e. -$50,000

4. If the actual number of units produced and sold were as planned, (i.e., Xp=12,500 and Xs=11,000) then net income under absorption costing would include

a. a reward of $10,000
b. a reward of $60,000
c. a penalty of $50,000
d. a penalty of 45,000
e. none of these.

5. If the actual number of units produced and sold were as planned, (i.e., Xp=12,500 and Xs=11,000) then net income under direct costing would include

a. a reward of $10,000
b. a reward of $60,000
c. a penalty of $50,000
d. a penalty of 45,000
e. none of these.

6. If the actual number of units produced and sold were as planned, (i.e., Xp=12,500 and Xs=11,000) then net income under throughput costing would include

a. a reward of $10,000
b. a reward of $60,000
c. a penalty of $50,000
d. a penalty of 45,000
e. none of these.

7. If Palm Company's Budgeted units for production were increased by 1,000, what effect would this have on budgeted net income under absorption costing (NIA) and direct costing (NID?

a. Both NIA and NID would increase by 40,000.
b. NIA would increase by 40,000, but NID would not change.
c. NIA would increase by 105,000, but NID would only increase by 65,000.
d. Both NIA and NID would increase by 105,000.
e. None of these.

Now assume that the Palm Company’s budget for year 2 is based on sales of 12,000 units and that all of the information in the table above for year 1 is also applicable to year 2. In addition, assume that there were no beginning or ending inventories for year 2 and the actual number of units sold during in year 2 was 12,500. An initial analysis for the period is provided in the table below.

Income Statement Budget Actual
Sales $1,440,000 $1,562,500
Cost of Goods Sold 1,260,000 1,360,000
Gross Profit $180,000 $202,500

8. The effect on sales revenue caused by the difference between budgeted and actual sales prices is

a. 122,500 favorable.
b. 15,000 favorable.
c. 62,500 unfavorable.
d. 62,500 favorable.
e. None of these.

9. The effect on sales revenue caused by the difference between budgeted and actual sales volume is

a. 60,000 favorable.
b. 60,000 unfavorable.
c. 7,500 favorable.
d. 122,500 favorable.
e. None of the above.

10. The effect on cost of goods sold caused by the difference between budgeted and actual unit cost of goods sold is

a. 100,000 unfavorable.
b. 52,500 unfavorable.
c. 52,500 favorable.
d. 47,500 unfavorable.
e. Some other amount.

11. The effect on cost of goods sold caused by the difference between budgeted and actual sales volume is

a. 7,500 favorable.
b. 52,500 favorable.
c. 52,500 unfavorable.
d. 47,500 unfavorable.
e. None of the above.

12. In an overall profit analysis, which variance would be favorably affected by an increase in sales volume?

a. Sales price variance.
b. Revenue part of sales volume variance.
c. Unit cost variance.
d. Cost part of sales volume variance.
e. none of these.

13. In an overall profit analysis, which variance would be favorably affected by a decrease in sales volume?

a. Sales price variance.
b. Revenue part of sales volume variance.
c. Unit cost variance.
d. Cost part of sales volume variance.
e. none of these.

14. In an overall profit analysis, which variance would be favorably affected by an increase in sales volume?

a. Sales price variance.
b. Revenue part of sales volume variance.
c. Unit cost variance.
d. Cost part of sales volume variance.
e. none of these.

15. In a profit analysis, which variance would be favorably affected by a decrease in sales volume?

a. Sales price variance.
b. Revenue part of sales volume variance.
c. Unit cost variance.
d. Cost part of sales volume variance.
e. none of these.

16. In a profit analysis based on absorption costing, which variance includes the production volume variance?

a. Sales price variance.
b. Revenue part of sales volume variance.
c. Unit cost variance.
d. Cost part of sales volume variance.
e. none of these.

17. In a profit analysis based on variable costing, which variance includes the production volume variance?

a. Sales price variance.
b. Revenue part of sales volume variance.
c. Unit cost variance.
d. Cost part of sales volume variance.
e. none of these.

18. When comparing profit analyses based on absorption costing and variable costing, two of the variances will always be the same in both analyses. These two variances are the

a. Price-cost variance and the sales volume variance.
b. Sales price variance and the revenue part of sales volume variance.
c. Unit cost variance and the cost part of the sales volume variance.
d. Sales price variance and the unit cost variance.
e. none of these.

19. Which two profit variances are thought of as marketing variances, rather than production variances?

a. Sales price variance and the revenue part of sales volume variance.
b. Unit cost variance and the cost part of the sales volume variance.
c. Price-cost variance and the sales volume variance.
d. Sales price variance and the unit cost variance.
e. none of these.

20. In a profit analysis based on direct or variable costing, which two variances are determined by comparing two flexible budgets?

a. sales price variance and unit cost variance.
b. sales price variance and revenue part of sales volume variance.
c. unit cost variance and cost part of sales volume variance.
d. the two sales volume variances.
e. none of the above.

Chapter 13 Extra MC Solution