14 12 a favorable sales quantity variance arises

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14-12 A favorable sales-quantity variance arises because the actual units of all products sold exceed the budgeted units of all products sold.
14-3 14-13 The sales-quantity variance can be decomposed into (a) a market-size variance (because the actual total market size in units is different from the budgeted market size in units), and (b) a market share variance (because the actual market share of a company is different from the budgeted market share of a company). Both variances use the budgeted average contribution margin per unit. 14-14 Some companies believe that reliable information on total market size is not available and therefore they choose not to compute market-size and market-share variances. 14-15 The direct materials efficiency variance is a Level 3 variance. Further insight into this variance can be gained by moving to a Level 4 analysis where the effect of mix and yield changes are quantified. The mix variance captures the effect of a change in the relative percentage use of each input relative to that budgeted. The yield variance captures the effect of a change in the total number of inputs required to obtain a given output relative to that budgeted. 14-16 (15-20 min.) Cost allocation in hospitals, alternative allocation criteria. 1. Direct costs = $2.40 Indirect costs ($11.52 $2.40) = $9.12 Overhead rate = Error! = 380% 2. The answers here are less than clear-cut in some cases. Overhead Cost Item Allocation Criteria Processing of paperwork for purchase Supplies room management fee Operating-room and patient-room handling costs Administrative hospital costs University teaching-related costs Malpractice insurance costs Cost of treating uninsured patients Profit component Cause and effect Benefits received Cause and effect Benefits received Ability to bear Ability to bear or benefits received Ability to bear None. This is not a cost. 3. Assuming that Meltzer s insurance company is responsible for paying the $4,800 bill, Meltzer probably can only express outrage at the amount of the bill. The point of this question is to note that even if Meltzer objects strongly to one or more overhead items, it is his insurance company that likely has the greater incentive to challenge the bill. Individual patients have very little power in the medical arena. In contrast, insurance companies have considerable power and may decide that certain costs are not reimbursable –– for example, the costs of treating uninsured patients.
14-4 14-17 (15 min.) Cost allocation and motivation. Because corporate policy encourages line managers to seek legal counsel on pertinent issues from the Legal Department, any step in the direction of reducing costs of legal department services would be consistent with the corporate policy. Currently a user department is charged a standard fee of $400 per hour based on actual usage. It is possible that some managers may not be motivated to seek the legal counsel they need due to the high-allocated cost of the service. It is also possible that those managers whose

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