CHAPTER 14 COST ALLOCATION, CUSTOMER-PROFITABILITY

156. Aromatic Coffee, Inc., sells two types of coffee, Colombian and Blue Mountain. The monthly budget for U.S. coffee sales is based on a combination of last year's performance, a forecast of industry sales, and the company's expected share of the U.S. market. The following information is provided for March:

Actual Budget

Colombian Blue Mountain Colombian Blue Mountain

Sales in pounds 7,000 lbs. 8,000 lbs. 6,400 lbs. 8,600 lbs

Price per pound $25 $30 $25 $30

Variable cost per pound 11 14 12 13

Contribution margin $14 $16 $13 $17

Budgeted and actual fixed corporate-sustaining costs are $60,000 and $72,000, respectively.

Required:

a. Calculate the actual contribution margin for the month.

b. Calculate the contribution margin for the static budget.

c. Calculate the contribution margin for the flexible budget.

d. Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin.

157. Harry's Electronics manufactures TVs and VCRs. During February, the following activities occurred:

TVs VCRs

Budgeted units sold 17,640 66,360

Budgeted contribution margin per unit $90 $156

Actual units sold 20,000 80,000

Actual contribution margin per unit $100 $158

Required:

Compute the following variances in terms of the contribution margin.

a. Determine the total sales-mix variance.

b. Determine the total sales-quantity variance.

c. Determine the total sales-volume variance.

158. Speedy Printing manufactures soft cover books. For January, the following information is available:

Budgeted market size (units) 125,000

Budgeted market share 18%

Budgeted average contribution margin per unit $1.20

Actual market size (units) 100,000

Actual market share 19%

Actual average contribution margin per unit $1.22

Required:

Compute the market-share variance, the market-size variance, and the sales-quantity variance in terms of the contribution margin.

159. The Omega Corporation manufactures two types of vacuum cleaners: the ZENITH for commercial building use and the House-Helper for residences. Budgeted and actual operating data for the year 20X5 are as follows:

Static Budget ZENITH House-Helper Total

Number sold 15,000 60,000 75,000

Contribution margin $3,750,000 $12,000,000 $15,750,000

Actual Results ZENITH House-Helper Total

Number sold 16,500 38,500 55,000

Contribution margin $6,200,000 $10,200,000 $16,400,000

Required:

a. Calculate the contribution margin for the flexible budget.

b. Determine the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance in terms of the contribution margin.

160. The Omega Corporation manufactures two types of vacuum cleaners: the ZENITH for commercial building use and the House-Helper for residences. Budgeted and actual operating data for the year 20X5 are as follows:

Static Budget ZENITH House-Helper Total

Number sold 15,000 60,000 75,000

Contribution margin $3,750,000 $12,000,000 $15,750,000

Actual Results ZENITH House-Helper Total

Number sold 16,500 38,500 55,000

Contribution margin $6,200,000 $10,200,000 $16,400,000

Required:

Compute the sales-mix variance and the sales-quantity variance by type of vacuum cleaner, and in total. (in terms of the contribution margin)

161. The Omega Corporation manufactures two types of vacuum cleaners, the ZENITH for commercial building use and the House-Helper for residences. Budgeted and actual operating data for the year 20X5 are as follows:

Static Budget ZENITH House-Helper Total

Number sold 15,000 60,000 75,000

Contribution margin $3,750,000 $12,000,000 $15,750,000

Actual Results ZENITH House-Helper Total

Number sold 16,500 38,500 55,000

Contribution margin $6,200,000 $10,200,000 $16,400,000

Prior to the beginning of the year, a consulting firm estimated the total volume for vacuum cleaners of the Zenith and House-Helper category to be 300,000 units, but actual industry volume was only 275,000 units.

Required:

Compute the market-share variance and market-size variance in terms of the contribution margin.

162. The Chair Company manufactures two modular types of chairs: one for the residential market, and the other for the office market. Budgeted and actual operating data for the year 20X5 are:

Static Budget Residential Office Total

Number of chairs sold 260,000 140,000 400,000

Contribution margin $26,000,000 $11,200,000 $37,200,000

Actual Results Residential Office Total

Number of chairs sold 248,400 165,600 414,000

Contribution margin $22,356,000 $13,248,000 $35,604,000

Prior to the beginning of the year, an office products research firm estimated the industry volume for residential and office chairs of the type sold by the Chair Company to be 2,400,000. Actual industry volume for the year 20X5 was only 2,200,000 chairs.

Required:

Compute the following variances in terms of contribution margin:

a. Compute the total static-budget variance, the total flexible-budget variance, and the total sales-volume variance.

b. Compute the sale-mix variance and the sales-quantity variance by type of chair, and in total.

c. Compute the market-share variance and market-size variance.

CRITICAL THINKING

163. A company might choose to allocate corporate costs to various divisions within the company for what four purposes? Give an example of each.

164. An electronics manufacturer is trying to encourage its engineers to design simpler products so that overall costs are reduced.

Required:

Which of the value-chain function costs (R&D, design, production, marketing, distribution, customer service) should be included in product-cost estimates to achieve the above purpose? Why?

165. Should a company allocate its corporate costs to divisions?

166. List at least three different levels of costs in a customer-cost hierarchy and an example of each.

167. Why would a manager perform customer-profitability analysis?

168. What actions might be taken with an unprofitable customer?

169. Why would a manager want to calculate the sale-mix and the sales-quantity variances? Market-share and market-size variances?