1 

Given in the question,                                                       

Sales volume variance = 16000

Static budget variance = 20000

Flexible budget variance = ?

Sales volume variance = Flexible budget variance – Static budget variance

16000 = Flexible budget variance – 20000                  (Substituting the value from above)                      

Flexible budget variance = 20000 + 16000

                                             = 36000 favourable

Answer: c

2 

Total fixed costs $840,000

Sale price per unit 80

Variable cost per unit 30

Let us consider the breakeven sale of units is "x units", i.e., at the sale of x units, the cost incurred is equal to the sales

 (Total fixed cost)(Total Variable cost)=Sale Amount

 $840,000 + $30*x = $80*x

 $50x = $840,000

 x = 16,800

from the above, we can conclude that the breakeven point is 16,800 units

by the question we can know that, Before the change, the company's sales level exceeds the breakeven point.Which implies we are incurring only variable cost for the sale of units above the breakeven point.

After the breakeven point, for the sale of each unit, we have to incur only variable cost for the sale of such unit. Above the variable cost, $50(saleprice of $80 - Variable cost of $30) per unit will be the profit for each unit of sale.

for the sale of 2500 unit we will be earning the profit of $125,000 ($50*2500 units)

If ABC spends an additional $35,000 on advertising

Conclusion

It is advisable to accept. because ABC is earning the profit of $90,000 ($125,000 - $35,000)