1- How can the controller use the expected value approach to set the sales level for the

budget? What additional information would be needed?

2- How could the use of variable (direct) costing mitigate the problem of how to allocate the
fixed costs to individual units?
3- Which cost system seems to make more sense for TruJeans, job order costing or
process costing? Explain your answer.
1-

Explanation

The sales staff has not presented the controller with a unique expected level of sales, but rather
sales numbers under various scenarios. The controller could use the expected sales in the budget,
which is the summation of the anticipated sales under each scenario times the probability of that
scenario. The controller would need to estimate the probability of each scenario in order to
complete the task.
2-

Explanation

Under direct costing, fixed manufacturing costs are expensed rather than being added to the
inventorial cost of each unit. Thus, it is not necessary to determine the allocation of fixed costs to
individual units.
3-

Explanation

At first glance, job order costing appears to make more sense, as each pair of jeans is unique,
given that the buyer's name is stitched on the back pocket. However, in reality, process costing
should be used, because jeans will be produced continually, and for cost purposes, will be the
same for each pair.