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Chapter 13 Extra MC Solution

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.

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

b. $10,000

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

e. -$50,000

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

b. -$95,000

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

b. a reward of $60,000

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

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

d. a penalty of 45,000

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?

b. NIA would increase by 40,000, but NID would not change.

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.

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

d. 62,500 favorable.

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

a. 60,000 favorable.

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

d. 47,500 unfavorable.

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

c. 52,500 unfavorable.

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

b. Revenue part of sales volume variance.

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

d. Cost part of sales volume variance.

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

b. Revenue part of sales volume variance.

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

d. Cost part of sales volume variance.

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

c. Unit cost variance.

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

b. Sales price variance and the revenue part of sales volume variance.

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.

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

d. the two sales volume variances.

Chapter 13 Extra MC Questions