Question

In 2013, only 806,840 Deliman meals were produced and sold to the hospitals. Smith suspects that hospital controllers had systematically inflated their 2013 meal estimates.
In 9-32
Estimated sales .............. 10,000 books
Beginning inventory ............ 0 books
Average selling price ........... $100 per book
Variable production costs ......... $60 per book
Fixed production costs .......... $120,000 per semester
REQUIRED
1. Recall that Deliman uses the master-budget capacity utilization to allocate fixed costs and to price meals. What was the effect of production-volume variance on Deliman’s operating income in 2013?
2. Why might hospital controllers deliberately overestimate their future meal counts?
3. What other evidence should Deli One’s controller seek to investigate Smith’s concerns?
4. Suggest two specific steps that Deli One’s controller might take to reduce hospital controllers’ incentives to inflate their estimated meal counts.


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  • CreatedJuly 31, 2015
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