Problem 1: The following is the current variable costing income statement for Dolly Corporation. Sales (5,000 units) $100,000 Variable expenses Cost of goods sold $35,000 Selling (10% of sales) $10,000 $45,000 Contribution margin $55,000 Fixed expenses Manufacturing overhead $24,000 Administrative $12,500 $36,500 Operating income $18,500 Below is the following information on operations for Dolly Corporation. Beginning inventory (units) 0 Units produced (units) 6,000 Manufacturing costs Direct labor (per unit) $5.00 Direct materials (per unit) $2.30 Variable overhead (per unit) $2.40 Required: Prepare an absorption costing income statement.

Problem 2: Peaceful Corporation manufactures figurines based on the following information. Standard costs $20 Materials (4 ounces at $5) $8 Direct labor (1 hour per unit) $4 Variable overhead (based on direct labor hours) Fixed overhead budget $19,000 Actual results and costs Materials purchased Units 9,000 Cost $39,600 Materials used in production Finished product units 2,000 Raw material (ounces) 8,200 Direct labor hours 2,000 Direct labor cost $20,000 Variable overhead costs $5,980 Fixed overhead costs $19,500 Required: Prepare a performance report for Peaceful using the following headings. Actual Production Costs Flexible Budget Costs Flexible Budget Variances Compute the following variances (show calculations). Materials usage variance Labor rate variance Labor efficiency variance Variable overhead spending variance Variable overhead efficiency variance Fixed overhead budget variance Give one possible explanation for each of the six variances computed in part

b. Problem 3: The following information was compiled for two models of cell phones. 3G model 4G model Average Budgeted Contribution Margin $80.00 $120.00 $95.25 Budgeted Sales in Units 28,000 18,000 Actual Sales in Units 28,600 16,500 Required: Calculate the sales mix variance. (Show your calculations.)