Assignment Material

Questions

1. 15-1. “I’m going to focus on the customers of my business and leave cost-allocation issues to my accountant.” Do you agree with this comment by a division president? Explain.
2. 15-2. Why is customer-profitability analysis an important topic for managers?
3. 15-3. How can a company track the extent of price discounting on a customer-by-customer basis?
4. 15-4. “A customer-profitability profile highlights those customers a company should drop to improve profitability.” Do you agree? Explain.
5. 15-5. Give examples of three different levels of costs in a customer-cost hierarchy.
6. 15-6. What information does the whale curve provide?
7. 15-7. “A company should not allocate all of its corporate costs to its divisions.” Do you agree? Explain.
8. 15-8. What criteria might managers use to guide cost-allocation decisions? Which are the dominant criteria?
9. 15-9. “Once a company allocates corporate costs to divisions, these costs should not be reallocated to the indirect-cost pools of the division.” Do you agree? Explain.
10. 15-10. “A company should not allocate costs that are fixed in the short run to customers.” Do you agree? Explain briefly.
11. 15-11. How should a company decide on the number of cost pools it should use to allocate costs to divisions, channels, and customers?
12. 15-12. Show how managers can gain insight into the causes of a sales-volume variance by subdividing the components of this variance.
13. 15-13. How can the concept of a composite unit be used to explain why an unfavorable total sales-mix variance of contribution margin occurs?
14. 15-14. Explain why a favorable sales-quantity variance occurs.
15. 15-15. How can the sales-quantity variance be decomposed further?

Multiple-Choice Questions

1. 15-16. FLEXIBLE-BUDGET VARIANCE, SALES-QUANTITY, MARKET-SIZE, AND MARKET-SHARE VARIANCE. The actual contribution margin per unit will impact the following sales variance:
   1. a. Flexible-budget variance
   2. b. Market-size variance
   3. c. Market-share variance
   4. d. Sales-quantity variance
2. 15-17. SALES-VOLUME, SALES-MIX, AND SALES-QUANTITY VARIANCE. Lexota, Inc., an auto manufacturer, reported the following budgeted and actual sales of its vehicles during September, Year 2: 

1. The budgeted contribution margin is 20% for both vehicle types. Which of the following statements is true concerning the sales variances for Lexota, Inc. for September, Year 2?
   1. a. The sales-volume variance for the company is favorable.
   2. b. The sales-quantity variance for the company is unfavorable.
   3. c. The budgeted variable cost for each vehicle type is the same.
   4. d. The sales-mix variance for the company is unfavorable.

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Exercises

1. 15-18. COST ALLOCATION IN HOSPITALS, ALTERNATIVE ALLOCATION CRITERIA. Dave McKnight vacationed at Lake Tahoe last winter. Unfortunately, he broke his ankle while skiing and spent 2 days at the Sierra University Hospital. McKnight’s insurance company received a $4,850 bill for his 2-day stay. One item that caught McKnight’s attention was a $11.75 charge for a roll of cotton. McKnight is a salesman for Johnson & Johnson and knows that the cost to the hospital of the roll of cotton is between $2.15 and $2.95. He asked for a breakdown of the $11.75 charge. The accounting office of the hospital sent him the following information:

1. McKnight believes the overhead charge is outrageous. He comments, “There was nothing I could do about it. When they come in and dab your stitches, it’s not as if you can say, ‘Keep your cotton roll. I brought my own.’”
   1. Required
   2. 1. Compute the overhead rate Sierra University Hospital charged on the cotton roll.
   3. 2. What criteria might Sierra use to justify allocation of the overhead items b–i in the preceding list? Examine each item separately and use the allocation criteria listed in Exhibit 15-8 in your answer.
   4. 3. What should McKnight do about the $11.75 charge for the cotton roll?
2. 15-19. CUSTOMER PROFITABILITY, CUSTOMER-COST HIERARCHY. Enviro-Tech has only two retail and two wholesale customers. Information relating to each customer for 2020 follows (in thousands):

1. Enviro-Tech’s annual distribution-channel costs are $33 million for wholesale customers and $12 million for retail customers. The company’s annual corporate-sustaining costs, such as salary for top management and general-administration costs are $48 million. There is no cause-and-effect or benefits-received relationship between any cost-allocation base and corporate-sustaining costs. That is, Enviro-Tech could save corporate-sustaining costs only if the company completely shuts down.
   1. Required
   2. 1. Calculate customer-level operating income using the format in Exhibit 15-3.
   3. 2. Prepare a customer-cost hierarchy report, using the format in Exhibit 15-6.
   4. 3. Enviro-Tech’s management decides to allocate all corporate-sustaining costs to distribution channels: $38 million to the wholesale channel and $10 million to the retail channel. As a result, distribution channel costs are now $71 million ($33 million + $38 million) for the wholesale channel and $22 million ($12 million + $10 million) for the retail channel. Calculate the distribution-channel-level operating income. On the basis of these calculations, what actions, if any, should Enviro-Tech’s managers take? Explain.
   5. 4. How might Enviro-Tech use the new cost information from its activity-based costing system to better manage its business?
2. 15-20. CUSTOMER PROFITABILITY, SERVICE COMPANY. Instant Service (IS) repairs printers and photocopiers for five multisite companies in a tristate area. IS’s costs consist of the cost of technicians and equipment that are directly traceable to the customer site and a pool of office overhead. Until recently, IS estimated customer profitability by allocating the office overhead to each customer based on share of revenues. For 2020, IS reported the following results:

1. Abby Costa, IS’s new controller, notes that office overhead is more than 10% of total costs, so she spends a couple of weeks analyzing the consumption of office overhead resources by customers. She collects the following information:

1. 1. Required
   2. 1. Compute customer-level operating income using the new information that Costa has gathered.
   3. 2. Prepare exhibits for IS similar to Exhibits 15-4 and 15-5. Comment on the results.
   4. 3. What options should IS consider, with regard to individual customers, in light of the new data and analysis of office overhead?
2. 15-21. CUSTOMER PROFITABILITY, DISTRIBUTION. HQ Drugs is a distributor of pharmaceutical products. Its ABC system has five activities:

1. Rick Flair, the controller of HQ Drugs, wants to use this ABC system to examine individual customer profitability within each distribution market. He focuses first on the Ma and Pa single-store distribution market. Using only two customers helps highlight the insights available with the ABC approach. Data pertaining to these two customers in August 2020 are as follows:

1. Required
2. 1. Use the ABC information to compute the operating income of each customer in August 2020. Comment on the results and what, if anything, Flair should do.
3. 2. Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $55,680. HQ Drugs reports operating losses of $18,290 for the bottom 40% of its customers. Make four recommendations that you think HQ Drugs should consider in light of this new customer-profitability information.

1. 15-22. COST ALLOCATION AND DECISION MAKING. Travel Ready has three divisions: United States, Europe, and Caribbean. Corporate headquarters is in Boston. Travel Ready corporate headquarters incurs costs of $34,000,000 annually, which is an indirect cost of the divisions. Corporate headquarters currently allocates this cost to the divisions based on the revenues of each division. The president has asked each division manager to suggest an allocation base for the corporate headquarters costs from among revenues, division margin, direct costs, and number of employees. The following is relevant information about each division:

1. Required
2. 1. Allocate the corporate headquarters costs of Travel Ready to each of the three divisions using revenues, direct costs, division margin, and number of employees as the allocation bases. Calculate operating margins for each division after allocating headquarters costs.
3. 2. Which method of allocation would you expect each manager to recommend? Explain.
4. 3. What factors would you consider in deciding which allocation base Travel Ready should use? 
5. 4. Suppose Travel Ready decides to use number of employees as the allocation base. Should theEuropean division be closed? Why or why not?

1. 15-23. COST ALLOCATION TO DIVISIONS. Martini Hotel & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room hotel, a casino, and a restaurant. As Martini’s new controller, your manager asks you to recommend the basis the hotel should use for allocating fixed overhead costs to the three divisions in 2020. You are presented with the following income statement information for 2019:

1. You are also given the following data on the three divisions:

1. You are told that you may choose to allocate indirect costs based on one of the following: direct costs, floor space, or the number of employees. Total fixed overhead costs for 2019 were $14,660,000.
   1. Required
   2. 1. Calculate division margins in percentage terms prior to allocating fixed overhead costs.
   3. 2. Allocate indirect costs to the three divisions using each of the three allocation bases suggested. For each allocation base, calculate division operating margins after allocations, in dollars and as a percentage of revenues.
   4. 3. Discuss the results. How would you decide how to allocate indirect costs to the divisions? Why?
   5. 4. Would you recommend closing any of the three divisions in the short run (and possibly reallocating resources to other divisions) as a result of your analysis? If so, which division would you close and why?
2. 15-24. COST ALLOCATION TO DIVISIONS. Holbrook Corporation has three divisions: pulp, paper, and fibers. Holbrook’s new controller, Paul Mayer, is reviewing the allocation of fixed corporate-overhead costs to the three divisions. He is presented with the following information for each division for 2020:

1. Until now, Holbrook Corporation has allocated fixed corporate-overhead costs to the divisions on the basis of division margins. Mayer asks for a list of costs that comprise fixed corporate overhead and suggests the following new allocation bases:

1. Required
2. 1. Allocate 2020 fixed corporate-overhead costs to the three divisions using division margin as the allocation base. What is each division’s operating margin percentage (division margin minus allocated fixed corporate-overhead costs as a percentage of revenues)?
3. 2. Allocate 2020 fixed costs using the allocation bases suggested by Mayer. What is each division’s operating margin percentage under the new allocation scheme?
4. 3. Compare and discuss the results of requirements 1 and 2. If division performance incentives arebased on operating margin percentage, which division would be most receptive to the new allocationscheme? Which division would be the least receptive? Why?
5. 4. Which allocation scheme should Holbrook Corporation use? Why? How might Mayer overcome anyobjections that may arise from the divisions?

1. 15-25. VARIANCE ANALYSIS, MULTIPLE PRODUCTS. The Chicago Tigers play in the American Ice Hockey League. The Tigers play in the Downtown Arena, which is owned and managed by the City of Chicago. The arena has a capacity of 15,000 seats (5,500 lower-tier seats and 9,500 upper-tier seats). The arena charges the Tigers a per-ticket charge for use of its facility. All tickets are sold by the Reservation Network, which charges the Tigers a reservation fee per ticket. The Tigers’ budgeted contribution margin for each type of ticket in 2020 is computed as follows:

1. The budgeted and actual average attendance figures per game in the 2020 season are as follows:

1. There was no difference between the budgeted and actual contribution margin for lower-tier or upper-tier seats.
2. The manager of the Tigers was delighted that actual attendance was 10% above budgeted attendance per game, especially given the depressed state of the local economy in the past 6 months.
   1. Required
   2. 1. Compute the sales-volume variance for each type of ticket and in total for the Chicago Tigers in 2020. (Calculate all variances in terms of contribution margins.)
   3. 2. Compute the sales-quantity and sales-mix variances for each type of ticket and in total in 2020.
   4. 3. Present a summary of the variances in requirements 1 and 2. Comment on the results.
3. 15-26. VARIANCE ANALYSIS, WORKING BACKWARD. The Hiro Corporation sells two brands of wine glasses: Plain and Chic. Hiro provides the following information for sales in the month of June 2020:

1. All variances are computed in contribution-margin terms.
   1. Required
   2. 1. Calculate the sales-quantity variances for each product for June 2020.
   3. 2. Calculate the individual-product and total sales-mix variances for June 2020. Calculate the individual-product and total sales-volume variances for June 2020.
   4. 3. Briefly describe the conclusions you can draw from the variances.
2. 15-27. VARIANCE ANALYSIS, MULTIPLE PRODUCTS. Emcee Inc. manufactures and sells two fruit drinks: Kostor and Limba. Budgeted and actual results for 2020 are as follows:

1. Required
2. 1. Compute the total sales-volume variance, the total sales-mix variance, and the total sales-quantity variance. (Calculate all variances in terms of contribution margin.) Show results for each product in your computations.
3. 2. What inferences can you draw from the variances computed in requirement 1?

1. 15-28. [Required] MARKET-SHARE AND MARKET-SIZE VARIANCES (CONTINUATION OF 15-27). Emcee Inc. prepared the budget for 2020 assuming a 20% market share based on total sales in the Midwest region of the United States. The total fruit drinks market was estimated to reach sales of 1.25 million cartons in the region. However, actual total sales volume in the Midwest region was 1.5 million cartons.
2. Required
3. Calculate the market-share and market-size variances for Emcee Inc. in 2020. (Calculate all variances in terms of contribution margin.) Comment on the results.

Problems

1. 15-29. PURPOSES OF COST ALLOCATION. Ashley Miller recently started a job as an administrative assistant in the cost accounting department of Norton Manufacturing. New to the area of cost accounting, Ashley is puzzled by the fact that one of Norton’s manufactured products, SR670, has a different cost depending on who asks for it. When the marketing department requested the cost of SR670 in order to determine pricing for the new catalog, Ashley was told to report one amount, but when a request came in the very next day from the financial-reporting department for the cost of SR670, she was told to report a very different cost. Ashley runs a report using Norton’s cost accounting system, which produces the following cost elements for one unit of SR670:

1. Required
2. 1. Explain to Ashley why the cost given to the marketing and financial-reporting departments would be different.
3. 2. Calculate the cost of one unit of SR670 to determine the following:
   1. a. The selling price of SR670
   2. b. The cost of inventory for financial reporting
   3. c. Whether to continue manufacturing SR670 or to purchase it from an outside source (Assume that SR670 is used as a component in one of Norton’s other products.)

1. 15-30. CUSTOMER PROFITABILITY. Bracelet Delights is a new company that manufactures custom jewelry. Bracelet Delights currently has six customers referenced by customer number: 01, 02, 03, 04, 05, and 06. Besides the costs of making the jewelry, the company has the following activities:
   1. 1. Customer orders. The salespeople, designers, and jewelry makers spend time with the customer. The cost-driver rate is $42 per hour spent with a customer.
   2. 2. Customer fittings. Before the jewelry piece is completed, the customer may come in to make sure it looks right and fits properly. Cost-driver rate is $30 per hour.
   3. 3. Rush orders. Some customers want their jewelry quickly. The cost-driver rate is $90 per rush order.
   4. 4. Number of customer return visits. Customers visit to return jewelry up to 30 days after the pickup of the jewelry to have something refitted or repaired at no charge. The cost-driver rate is $40 per return visit.
2. Information about the six customers follows. Some customers purchase multiple items. The cost of the jewelry is 60% of the selling price.

1. Required
2. 1. Calculate the customer-level operating income for each customer. Rank the customers in order of most to least profitable and prepare a customer-profitability analysis, as in Exhibits 15-3 and 15-4.
3. 2. Are any customers unprofitable? What is causing this? What should Bracelet Delights do about these customers?

1. 15-31. CUSTOMER PROFITABILITY, DISTRIBUTION. Green Paper Delivery has decided to analyze the profitability of five new customers. It buys recycled paper at $20 per case and sells to retail customers at a list price of $26 per case. Data pertaining to the five customers are as follows:

1. Green Paper Delivery’s five activities and their cost drivers are as follows:

1. Required
2. 1. Compute the customer-level operating income of each of the five retail customers now being examined (1, 2, 3, 4, and 5). Comment on the results.
3. 2. What insights do managers gain by reporting both the list selling price and the actual selling price for each customer?
4. 3. What factors should managers consider in deciding whether to drop one or more of the five customers?

1. 15-32. CUSTOMER PROFITABILITY IN A MANUFACTURING FIRM. Mississippi Manufacturing makes a component called B2040. This component is manufactured only when ordered by a customer, so Mississippi keeps no inventory of B2040. The list price is $112 per unit, but customers who place “large” orders receive a 10% discount on price. The customers are manufacturing firms. Currently, the salespeople decide whether an order is large enough to qualify for the discount. When the product is finished, it is packed in cases of 10. If the component needs to be exchanged or repaired, customers can come back within 14 days for free exchange or repair.
2. The full cost of manufacturing a unit of B2040 is $95. In addition, Mississippi incurs customer-level costs. Customer-level cost-driver rates are shown below:

1. Information about Mississippi’s five biggest customers follows:

1. All customers except E ordered units in the same order size. Customer E’s order quantity varied, so E got a discount part of the time but not all the time.
   1. Required
   2. 1. Calculate the customer-level operating income for these five customers. Use the format in Exhibit 15-3. Prepare a customer-profitability analysis by ranking the customers from most to least profitable, as in Exhibit 15-4.
   3. 2. Discuss the results of your customer-profitability analysis. Does Mississippi have unprofitable customers? Is there anything Mississippi should do differently with its five customers?
2. 15-33. CUSTOMER-COST HIERARCHY, CUSTOMER PROFITABILITY. Louise Adam Inc. operates two divisions: Architectural Designs, which provides architecture services for homes, and Commercial Interior, which provides interior design service for commercial customers. Architecture Designs serves two customers, Adair and Arsdale, and Commercial Interiors serves two customers, Caleigh and Comet. Louise would like to evaluate the profitability of her four customers, as well as evaluate the profitability of each of the two divisions and the business as a whole. Information about her most recent quarter follow:

1. Overhead costs total $750,000. Louise has determined that 45% of her overhead costs relate directly to Architectural Designs, 35% relate directly to Commercial Interiors, and the remaining 20% are corporate overhead costs.
   1. Required
   2. 1. Prepare a customer-cost hierarchy report for Louise Adam Inc., using the format in Exhibit 15-6.
   3. 2. Prepare a customer-profitability analysis for the four customers, using the format in Exhibit 15-4.
   4. 3. Comment on the results of the preceding reports. What recommendations would you give Louise Adam?
2. 15-34. ALLOCATION OF CORPORATE COSTS TO DIVISIONS. Cathy Carpenter, controller of the Sweet and Salty Snacks, is preparing a presentation to senior executives about the performance of its four divisions. Summary data related to the four divisions for the most recent year are as follows:

1. Under the existing accounting system, costs incurred at corporate headquarters are collected in a single cost pool ($1.2 million in the most recent year) and allocated to each division on the basis of its actual revenues. The top managers in each division share in a division-income bonus pool. Division income is defined as operating income less allocated corporate costs.
2. Carpenter has analyzed the components of corporate costs and proposes that corporate costs be collected in four cost pools. The components of corporate costs for the most recent year and Carpenter’s suggested cost pools and allocation bases are as follows:

1. Required
2. 1. Discuss two reasons why Sweet and Salty Snacks should allocate corporate costs to each division.
3. 2. Calculate the operating income of each division when all corporate costs are allocated based on revenues of each division.
4. 3. Calculate the operating income of each division when all corporate costs are allocated using the four cost pools.
5. 4. How do you think the division managers will receive the new proposal? What are the strengths and weaknesses of Carpenter’s proposal relative to the existing single cost-pool method?

1. 15-35. COST ALLOCATION TO DIVISIONS. Francisco Bakery makes baked goods for grocery stores and has three divisions: bread, cake, and doughnuts. Each division is run and evaluated separately, but the main headquarters incurs costs that are indirect costs for the divisions. Costs incurred in the main headquarters are as follows:

1. The Francisco upper management currently allocates this cost to the divisions equally. One of the division managers has done some research on activity-based costing and proposes the use of different allocation bases for the different indirect costs—number of employees for HR costs, total revenues for accounting department costs, square feet of space for rent and depreciation costs, and equal allocation among the divisions of “other” costs. Information about the three divisions follows:

1. Required
2. 1. Allocate the indirect costs of Francisco to each division equally. Calculate division operating income after allocation of headquarter costs.
3. 2. Allocate headquarter costs to the individual divisions using the proposed allocation bases. Calculate the division operating income after allocation. Comment on the allocation bases used to allocate headquarter costs.
4. 3. Which division manager do you think suggested this new allocation. Explain briefly. Which allocation do you think is “better?”

1. 15-36. COST-HIERARCHY INCOME STATEMENT AND ALLOCATION OF CORPORATE COSTS TO CUSTOMERS. ISPStar offers Internet, phone, and television services to customers in Wyoming. It has two divisions, an Urban Division catering to urban customers and a Rural Division catering to rural customers. Currently, the company allocates corporate overhead on the basis of revenues of the two divisions. Harvey Leonard, ISPStar’s president, believes that this method of allocation does not adequately capture the demands that the two divisions put on corporate resources. He proposes developing a cost-hierarchy income statement and also an income statement allocating corporate overhead costs based on the number of service hours used in the two divisions. The Rural Division has a higher number of service hours because service personnel have to travel longer distances to reach customers.
2. The following information is available for the forthcoming period:

1. In addition to the customer-level costs above, the company expects to incur $2,250,000 of corporate costs.
   1. Required
   2. 1. Prepare a cost-hierarchy income statement for ISPStar using the format in Exhibit 15-7. assuming corporate costs are not allocated to each division.
   3. 2. Allocate the corporate costs to each division and calculate the income of each division after assigning corporate costs based on revenues of each division.
   4. 3. Allocate the corporate costs to each division and calculate the income of each division after assigning corporate costs based on service-hours worked in each division.
   5. 4. What are the advantages and disadvantages of ISPStar allocating corporate overhead costs to the two divisions?
   6. 5. Based on your answers to requirements 1 through 4, should Leonard close down the Rural Division? Explain.
2. 15-37. COST-HIERARCHY INCOME STATEMENT AND ALLOCATION OF CORPORATE, DIVISION, AND CHANNEL COSTS TO CUSTOMERS. Sportscast Inc. has two divisions, the Sporting Goods Division and the Memorabilia Division. Recently the company’s profitability has decreased. Management would like to analyze the profitability of each division based on the following information for the upcoming period:

1. The company allocates marketing and administration costs incurred to support the divisions as follows:

1. Based on a special study, the company allocates corporate costs of $200,000 to the two divisions based on the corporate resources demanded by the divisions as follows: Sporting Goods Division, $130,000, and Memorabilia Division, $70,000. If the company were to close a division, none of the corporate costs would be saved.
   1. Required
   2. 1. Calculate the operating income for each division as a percentage of revenue after assigning customer-level costs, marketing costs, administration costs, and corporate costs.
   3. 2. Should Sportscast Inc. close down any division? Explain briefly including any assumptions that you made.
   4. 3. Would you allocate corporate costs to divisions? Why is allocating these costs helpful? What actions would it help you take? 
2. 15-38 VARIANCE ANALYSIS, SALES-MIX AND SALES-QUANTITY VARIANCES. Miami Infonautics, Inc., produces Windows phones. Miami Infonautics markets three different handheld models: WinPro is a souped-up version for the executive on the go, WinCE is a consumer-oriented version, and WinKid is a stripped-down version for the young adult market. You are Miami Infonautics’ senior vice president of marketing. The chief executive officer (CEO) has discovered that the total contribution margin came in lower than budgeted, and it is your responsibility to explain to him why actual results are different from the budget. Budgeted and actual operating data for the company’s third quarter of 2020 are as follows:

1. Required
2. 1. Compute the actual and budgeted contribution margins in dollars for each product and in total for the third quarter of 2020.
3. 2. Calculate the actual and budgeted sales mixes for the three products for the third quarter of 2020.
4. 3. Calculate total sales-volume, sales-mix, and sales-quantity variances for the third quarter of 2020.(Calculate all variances in terms of contribution margins.)
5. 4. Given that your CEO gets very angry if actual results differ from budget, you want to be well preparedfor this meeting. In order to prepare, write a paragraph or two comparing actual results to budgetedamounts.

1. 15-39. MARKET-SHARE AND MARKET-SIZE VARIANCES (CONTINUATION OF 15-38). Miami Infonautics’ senior vice president of marketing prepared his budget at the beginning of the third quarter assuming a 25% market share based on total sales. Foolinstead Research estimated that the total market would reach sales of 408,600 units worldwide in the third quarter. However, actual sales in the third quarter were 515,000 units.
   1. Required
   2. 1. Calculate the market-share and market-size variances for Miami Infonautics in the third quarter of 2020 (calculate all variances in terms of contribution margins).
   3. 2. Explain what happened based on the market-share and market-size variances.
   4. 3. Calculate the actual market size, in units, that would have led to no market-size variance (again using budgeted contribution margin per unit). Use this market-size figure to calculate the actual market share that would have led to a zero market-share variance.
2. 15-40. VARIANCE ANALYSIS, MULTIPLE PRODUCTS. The Robin’s Basket operates a chain of Italian gelato stores. Although the Robin’s Basket charges customers the same price for all flavors, production costs vary, depending on the type of ingredients. Budgeted and actual operating data of its Washington, D.C., store for August 2020 are as follows:

1. The Robin’s Basket focuses on contribution margin in its variance analysis.
   1. Required
   2. 1. Compute the total sales-volume variance for August 2020.
   3. 2. Compute the total sales-mix variance for August 2020.
   4. 3. Compute the total sales-quantity variance for August 2020.
   5. 4. Comment on your results in requirements 1, 2, and 3.
2. 15-41. MARKET-SHARE AND MARKET-SIZE VARIANCES (CONTINUATION OF 15-40). The Robin’s Basket’s senior vice president of marketing prepared her budget at the beginning of the third quarter assuming a 10% market share based on a budgeted market size of 1,000,000 pints in August. However, actual market size in August was 1,250,000 pints.
   1. Required
   2. 1. Calculate the market-share and market-size variances for the Robin’s Basket in August 2020 (calculate all variances in terms of contribution margins).
   3. 2. Explain what happened based on the market-share and market-size variances.
   4. 3. How many pints would the Robin’s Basket have to sell in August 2020 for the market share variance to be zero? Calculate the actual market size, in units, that would have led to no market-size variance.
3. 15-42. CUSTOMER PROFITABILITY AND ETHICS. KC Corporation manufactures an air-freshening device called GoodAir, which it sells to six merchandising firms. The list price of a GoodAir is $30, and the full manufacturing costs are $18. Salespeople receive a commission on sales, but the commission is based on number of orders taken, not on sales revenue generated or number of units sold. Salespeople receive a commission of $10 per order (in addition to regular salary).
4. KC Corporation makes products based on anticipated demand. KC carries an inventory of GoodAir, so rush orders do not result in any extra manufacturing costs over and above the $18 per unit. KC ships finished product to the customer at no additional charge for either regular or expedited delivery. KC incurs significantly higher costs for expedited deliveries than for regular deliveries. Customers occasionally return shipments to KC, and the company subtracts these returns from gross revenue. The customers are not charged a restocking fee for returns.
5. Budgeted (expected) customer-level cost driver rates follow:

1. Because salespeople are paid $10 per order, they often break up large orders into multiple smaller orders. This practice reduces the actual order-taking cost by $7 per smaller order (from $15 per order to $8 per order) because the smaller orders are all written at the same time. This lower cost rate is not included in budgeted rates because salespeople create smaller orders without telling management or the accounting department. All other actual costs are the same as budgeted costs.
2. Information about KC’s clients follows:

1. Required
2. 1. Classify each of the customer-level operating costs as a customer output unit-level, customer batch-level, or customer-sustaining cost.
3. 2. Using the preceding information, calculate the expected customer-level operating income for the sixcustomers of KC Corporation. Use the number of written orders at $15 each to calculate expectedorder costs.
4. 3. Recalculate the customer-level operating income using the number of written orders but at their actual $8 cost per order instead of $15 (except for DC, whose actual cost is $15 per order). How will KCCorporation evaluate customer-level operating cost performance this period?
5. 4. Recalculate the customer-level operating income if salespeople had not broken up actual orders intomultiple smaller orders. Don’t forget to also adjust sales commissions.