Chapter 16 461
accessible website, in whole or in part.
The flexible budgets presented are based on three different activity measures,
none of which coincides with the actual level of performance for November.
b. Sales salaries are the only cost that varies perfectly with number of salespersons
($100,000 ÷ 100 = $1,000). The following vary with sales orders:
Sales commissions $400 per sales order
c. Birmingham Chemical
Selling Expense Report—November
Monthly Expenses
Budget
Actual
Variance
Adver. & promo.
$1,600,000
$1,550,000
$50,000 F
Admin. salaries
80,000
80,000
0
Sales salaries 1
90,000
101,000
11,000 U
Sales commissions2
596,000
609,000
13,000 U
Salesperson travel3
199,000
185,000
14,000 F
Sales off. expense4
448,000
500,000
52,000 U
660,000
640,000
20,000 F
$3,673,000
$3,665,000
$ 8,000 F
1($100,000 ÷ 100) 90 = $90,000
2($600,000 ÷ $15,000,000) $14,900,000 = $596,000
3Change in cost: $225,000 – $200,000 = $25,000
Change in sales dollars: $17,500,000 – $15,000,000 = $2,500,000
÷ $2,500,000 = $0.01 per dollar of sales
Fixed cost at $15,000,000: $200,000 – ($15,000,000 0.01) = $50,000
Total travel budget: $50,000 fixed + (14,900,000 0.01) = $199,000 (variable = $149,000)
4Change in cost: $452,500 – $445,000 = $7,500
d. Sales salaries ÷ # of salespersons = $101,000 ÷ 90 = $1,122 variable cost
(rounded)
Actual variable cost per sales order: Commissions ÷ # of orders =
$609,000 ÷ 1,600 = $380.63 (rounded)
462 Chapter 16
Variable travel ÷ # of orders = ($185,000 – $50,000) ÷ 1,600 = $84.38 (rounded)
$3,000 favorable variance presented in c.
(CMA adapted)
40. a. The incentives involved a tax holiday that was active for a period of one year.
Under the holiday provisions, companies could bring earnings back to the U.S.
b. Most estimates of the amount repatriated under the Act are between $300 and
$400 billion.
41. Firms accumulate cash for three reasons: to liquidate planned transactions, to pro-
vide for liquidation of unplanned transactions and for speculation. Internet com-
maintain cash balances sufficient to cover contingencies. Also, the Internet envi-
ronment is very fluid, and Internet companies must maintain enough cash to ex-
42. a. The high rate of growth has created a cash crunch for the firm because a signif-
icant amount of resources is tied up in the operating cycle. The operating cycle
In this case, $4,850,000 is invested in accounts receivable and inventory, and
only $200,000 is in cash.
to produce inventory. The payables cycle can be extended by asking suppliers to
grant more generous payment terms such that the outflow of cash to pay for
Chapter 16 463
43. To: Caroline Roper
From: Bret Shulman
Subject: Explanation of November 2013 Variances
dropped from $145.50 to $143.25.
b. The most significant implication of the revenue mix variance is that the propor-
tion of discount fees has increased by 50 percent. If the increase represents a
trend, the implications for future profits could be serious as revenues per partic-
c. The revenue timing difference was caused by early registrations for the Decem-
ber program to be held in Boston. The early registrations resulted from the
lower than expected.
e. The primary causes of the unfavorable total expense variance were additional
food charges, course materials, and instructor fees. Although these quantity var-
f. The favorable food price variance was determined by multiplying the difference
between the budgeted and actual price per participant day by the actual partici-
of operations to be matched against the December program.
h. The course development variance is unfavorable in the November budget, but
its overall impact on the company cannot be determined until such time as the
(CMA adapted)
464 Chapter 16
44. a. The controller would likely support the procurement of such a system because it
would allow controller functions to be executed more efficiently, and possibly,
which human error can be introduced–for example, manually transferring in-
formation from a material requisition form onto a purchase order.
b. The VP of product development would likely oppose implementing the system.
Perhaps more so than other executives in the firm, the VP of product develop-
flow of those ideas might be curtailed with the implementation of an e-
procurement system.
45. a. The breakeven point would occur where the total revenues equal the total costs.
Assume X equals number of participants, then
Total revenues = $600X
unacceptably high.
c. The source of risk is the fixed costs. If the rental for the training facilities could
participant, so the total variable cost of the academy is less than $600 per par-
ticipant, and the total fixed costs are $0.
46. a. There are two general types of recommendations that could be made to Logan.
First, one could recommend to Logan that forecasting models for energy costs
Logan to consider implementing such a strategy.
Chapter 16 465
accessible website, in whole or in part.
using the most economical energy sources.
47. (1) The financing costs of inventory have two sources of risk. The first relates to
the inventory itself: is the value of inventory to be financed and the length of
time the inventory must be financed; the second relates to the interest rate paid
to obtain the financing for the inventory. The value of inventory to be financed
with lenders.
(2) The cost of resin also has two main risk factors. One is the quantity of resin to
be acquired and the other is the price per unit to be paid for the resin. The
quantity of resin is best controlled by effectively managing the efficiency of
ing futures contracts (if available).
(3) “Acts of nature” are, by definition, impossible or nearly impossible to predict;
(5) Uncertainty regarding demand for the company’s products is best dealt with
by improving managers’ understanding of the demand drivers for the compa-