53.
The standards for one case of Peardrax are:
Direct materials
8 lbs. @ $3.50/lb.
Direct labor
4 hrs. @
$15.00/hr.
Variable overhead (based on
machine hours)
2 hrs. @ $5.00/hr.
During the week ended June 7, the following activity took place:
• 5,740 machine hours were worked;
• 22,600 lbs. of raw material were purchased for inventory at a total cost of $83,620;
• 2,700 cases of finished product were produced;
• 21,330 lbs. of raw material were used;
• 10,650 labor hours were worked at an average rate of $15.20 per hour;
• $27,552 actual variable overhead costs were incurred.
Calculate each of the following variances:
(a.) Price variance for raw materials purchased.
(b.) Raw materials usage variance.
(c.) Direct labor rate variance.
(d.) Direct labor efficiency variance.
(e.) Variable overhead spending variance.
(f.) Variable overhead efficiency variance.
54.
The Diamond Manufacturing Company uses a standard cost system for and applies
overhead based on machine hours. The following information is available for June:
Standard:
Machine hours (MH) per unit
2
Fixed overhead rate per MH
$5.00
Budgeted fixed overhead
$25,000
Actual:
Machine hours
4,800
Fixed overhead
$26,200
Units produced
2,600
Calculate the fixed overhead budget variance and volume variance for the month of June.
55.
Niangua Co. is divided into three segments and is interested in preparing a segmented
income statement in order to better understand the operating performance of each
segment. Fixed expenses in each division currently include an allocation of general
corporate expenses equal to 20% of the division’s sales.
Budget Variance:
Budgeted fixed overhead
Actual fixed overhead
Budget Variance
Volume Variance:
Volume Variance
Division 1
Division 2
Division 3
Sales
$320,000
$200,000
$280,000
Variable
expenses
208,000
120,000
152,000
Contribution
margin
$112,000
$80,000
$128,000
Fixed
expenses
80,000
88,000
72,000
Net income
(loss)
$32,000
$(8,000)
$56,000
Sales
Variable
expenses
Direct fixed
expenses
Segment
fixed
expenses
Net income
(loss)
56.
ABC, Inc., is segmented into three divisions and the company is concerned about the
performance of Division Y. During your analysis of Division Y, you learn that $42,000 of the
fixed expenses relate to general corporate expenses and had been allocated equally
between the three divisions.
Total
Company
Division X
Division Y
Division Z
Sales
$200,000
$80,000
$50,000
$70,000
Variable expenses
120,000
52,000
30,000
38,000
Contribution margin
$80,000
$28,000
$20,000
$32,000
Fixed expenses
60,000
20,000
22,000
18,000
Net income (loss)
$20,000
$8,000
$(2,000)
$14,000
(a.) Calculate what the company’s net income would be if Division Y were closed down.
(b.) Revise the income statement presented above into a more useful segmented income
statement.
(a.)
Current net income of
margin of Division Y
Add: Division Y direct fixed expenses
Total Division Y fixed
($42,000/3 divisions)
Company net income
(b.)
57.
The Central Division of AAA, Inc., has operating income of $64,000 on sales revenue of
$640,000. Divisional operating assets are $320,000 and management of AAA has
determined that a minimum return of 12% should be expected from all investments.
(a.) Using the DuPont model, calculate the Central Division’s margin, turnover, and ROI.
(b.) Calculate the Central Division’s residual income.
58.
Selected information about American Industries is presented below. American has three
operating divisions and requires a 12% return on all investments:
Eastern
Division
Central
Division
Western
Division
Revenues
$1,000,000
?
?
Operating
income
$120,000
?
$100,000
Operating
assets
$500,000
$300,000
?
Margin
?
12%
?
Turnover
?
1 turn
2 turns
ROI
?
?
?
Residual
income
?
?
$25,000
Calculate the missing amounts for each division.
Revenues
$120,000
$500,000
(Sales/Operating
assets)
59.
Innovation Inc.’s production budget for January is 35,000 units and includes the following
component unit costs: direct materials, $16; direct labor, $20; variable overhead, $12.
Budgeted fixed overhead is $70,000 (35,000 units × 1/2hour × $4unit). Actual production
in January was 36,000 units. Actual unit component costs incurred during January include
direct materials, $16.50; direct labor, $18.90; variable overhead, $13.64. Actual fixed
overhead was $67,000. The standard fixed overhead application rate per unit consists of
$4 per machine hour and each unit is allowed a standard of 1/2 hour of machine time.
Calculate the fixed overhead budget variance and the fixed overhead volume variance.