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Variances for Payday Company

Payday Company has the following two customers:
Woodley Henley
Sales $900,000 $800,000
Cost of Goods Sold $360,000 $160,000
MSDA expenses excluding sales $640,000 $130,000

If the company pays a 2% sales commission based on sales revenue, this will encourage a salespersons' effort to sell to:
(a) Woodley, an unprofitable customer.
(b) Woodley, a profitable customer.
(c) Henley, an unprofitable customer.
(d) Henley, a profitable customer.

Contempo manufacturing Inc. developed the following standard costs for direct material and direct labor for one of their major products, the 30-gallon heavy duty plastic container.

Standard Quantity Standard Price
Direct Materials 0.20 pounds $25 per pound
Direct Labor 0.10 hours $15 per hour

During October, Contempo produced and sold 10,000 containers using 2,200 pounds of direct materials at an average cost per pound of $24 and 1.050 direct labor hours at an average of $14.75 per hour.

October's direct material quantity variance was:
(a) $2,800 unfavorable.
(b) $2,200 favorable.
(c) $5,000 unfavorable.
(d) None of the above is correct.

*** Please show all work for the solutions. Thanks

Solution Preview

Variances
Payday Company has the following two customers:
Woodley Henley
Sales $900,000 $800,000
Cost of Goods Sold $360,000 $160,000
MSDA expenses excluding sales $640,000 $130,000

If the company pays a 2% sales commission based on sales revenue, this will encourage a salespersons' effort to sell to:
(a) Woodley, an unprofitable customer.
(b) Woodley, a profitable customer.
(c) Henley, an unprofitable customer. ...

Solution Summary

The variances for payday companies are provided. An unprofitable/profitable customers are given.

$2.19