1 Zicklin School of Business, Baruch College, CUNY ACC 9811. Managerial Accounting Midterm Solutions: Spring 2014 1 [5 points] Our company - EIS Technologies - designs and installs sophisticated internal-reporting systems for large firms. In 2013, our largest client was a grocery store chain Half Foods; we designed and installed a reporting system for this client. Engagement profitability report for the Half Foods contract is below: Engagement revenues$2,400,000Engagement costs:Attributable salaries‐consultants$967,000Attributable salaries‐support staff297,000Other attributable expenses95,0001,359,000Engagement profit$1,041,000Half FoodsEngagement Profitability ReportWhich of the following statements is correct (choose only one): A. EIS Technologies uses variable costing; B. EIS Technologies should be using practical consultant capacity to avoid the death spiral in its reporting system; C. The reported engagement profit is likely under-estimated because of the volume bias; D. The reported engagement profit is likely over-estimated because of the volume bias; E. None of the above statements is correct. The correct answer is A. There is no allocation of indirect cost in the profitability report, so the report uses variable costing. Death spiral and volume bias are not issues for firms using variable costing.
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