Dewey, Cheatum, and Howe, CPA’s, has three divisions: Audit, Tax, and Business Consulting. When the specifications for the new computer system were established, the audit division needed 50% of the capacity, the tax division required 30%, and business consulting required 20%. The managers agreed that the fixed costs of the computer department would be allocated based on these percentages. The variable costs of the computer department are allocated based on the minutes of computer time that each department uses. The computer department budget for fixed costs is $650,000, and the budget for variable costs is $147,000. The company anticipates using 420,000 minutes of computer time.

If the audit division uses 250,000 minutes of computer time, what amount of variable costs will be allocated to the audit division?
A. $38,690
B. $87,500
C. $24,696
D. $73,500

Last month, PeeWee Company manufactured 20,000 units and sold 18,000 of these units at a price of $8.00 per unit. Manufacturing costs consisted of direct labor, $30,000; direct materials, $32,000; variable manufacturing overhead, $3,600; fixed manufacturing overhead, $21,600. Selling and administrative costs totaled $24,000.

Assume PeeWee uses full costing? How much would the company’s gross margin increase if sales increased 10%?
A. 10%
B. more than 10%
C. less that 10%
D. cannot be determined

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