HORNGREN’S ACCOUNTING – Tenth Edition E24-22

| June 1, 2016

Question
HORNGREN’S ACCOUNTING – Tenth Edition
E24-22
One subunit of Mountain Sorts Commpany had the following financial results last month:
Mountain – Subunit X
Direct Materials
Direct Labor
Indirect Labor
Utilities
Depreciation
Repairs and Maintenance
Total

Actual
$28,500
$13,400
$26,200
$12,100
$26,000
$4,000
$110,200

Flexible Flexible Budget
Budget Variance (F or U)
$26,400
$14,100
$22,700
$11,100
$26,000
$4,900
$105,200

% Variance
(F or U)

Requirements
Complete the performance evaluation report for this subunit. Enter
1. the variance percent as a percentage rounded to two decimal
places.
2. Based on the data presented, what type of responsibility center is
this subunit?
Which items should be investigated if part of managements
3. decision criteria is to investigate all variances exceeding $2,500 or
10%?
4. Should only unfavorable variances be investigated? Explain.
Solution:
Requirement 1

MountainSubunit X

Actual

Flexible
Budget

Flexible
Budget
Variance
(F or
U)

% Variance
(F or U)

Requirement 2

Requirement 3

Requirement 4

Chapter 24: Cost Allocation And Responsibility Accounting

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HORNGREN’S ACCOUNTING – Tenth Edition
E25-13
Top Managers of Movie Street are alarmed by their operating losses. They are
considering dropping the DVD product ine. Company accountants have prepared the
following analysis to help make this decision:
Sales Revenue
Variable Costs
Contribution Margin
Fixed Costs:
Manufacturing
Selling and Admin
Total Fixed Expenses
Operating Income (Loss)

Total
$432,000
$246,000
$186,000
$128,000
$67,000
$195,000
($9,000)

Blu-Ray Discs
$305,000
$150,000
$155,000
$71,000
$52,000
$123,000
$32,000

DVD Discs
$127,000
$96,000
$31,000
$57,000
$15,000
$72,000
($41,000)

Total fixed costs will not change if the company stops selling DVDs.
Requirements
1. Prepare a differential analysis to show whether Movie Street should drop the
DVD product line.
2. Will dropping DVDs add $41,000 to operating income? Explain.
Solution:
Requirement 1

Requirement 2

Chapter 25: Short-Term Business Decisions

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