Answer:
The percentage of the firm that is financed by debt is:
40%
= $2 ($5 - $3) million/$5 million
= 40%
Explanation:
The long-term debt financing is the difference between the total assets of the firm and the value of the firm's equity. The debts/assets ratio is the financial leverage that the firm employs in running the business. The implication is that creditors can lay claim to 40% of the assets of the firm since the assets are financed 40% from debts. The remaining 60% is financed by Stockholders' Equity.
A disadvantage of using stock options to compensate managers is that:________
A) it encourages managers to undertake projects that will increase stock price.
B) it encourages managers to engage in empire building.
C) it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects.
D) All of the above
Answer:
C) it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects
Explanation:
A disadvantage of using stock options to compensate managers is that it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects.
A stock option is a contractual agreement that gives a buyer (investor) the right but certainly not an obligation to buy or sell a stock at a specified price and date, depending on the options' form. Generally, in business finance there are basically two (2) types of options;
1. Puts: it is a bet that a stock will likely fall in the short or long run.
2. Calls: it involves betting that a stock will rise in the short run or long run.
Hence, if managers are compensated with a stock option it gives them the opportunity to cash out early.
The supply of luxury boats is perfectly elastic, the demand for luxury boats is unit elastic, and with no tax on luxury boats the price is $22 million and 210210 luxury boats a week are bought. Now luxury boats are taxed 10%. What is the new quantity of boats sold and what is the governments tax revenue?
Answer:
New demand = 189 boats
Explanation:
Given:
Total demand = 210 boats
Price = $22 million
Tax increase = 10%
Find:
New demand
Governments tax revenue
Computation:
price increase by 10% so, demand decrease by 10%
New demand = Total demand [100% - 10%]
New demand = 210 [90%]
New demand = 189 boats
Governments tax revenue = 189[($22million + 10%) - $22million]
Governments tax revenue = 189[$24.2 - $22million]
Governments tax revenue = $415.8 million]
Schrank Company is trying to decide how many units of merchandise to order each month. Company policy is to have 30% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 35,000 units, 25,000 units, and 45,000 units, respectively. How many units must be purchased in September?
Answer:
31,000 units
Explanation:
Calculation for how many units must be purchased in September
Using this formula
Purchase = (Percentage of the month's sales in inventory × Projected sales for October + Projected sales for September - (Percentage of the month's sales in inventory ×Projected sales for September)
Let plug in the formula
Purchase =(30%× 45,000) + 25,000 - (30% × 25,000)
Purchase =13,500+25,000 -(7,500)
Purchase =38,500-7,500
Purchase =31,000 Units
Therefore 31,000 units must be purchased in September
The management team of Wickersham Brothers Inc. is preparing its annual financial statements.
The statements are complete, except for the Statement of Cash Flows.
The completed comparative Balance Sheets and Income Statements are summarized:
Balance Sheet
Assets: Current Year Prior Year
Cash $95,700 $114,900
Accounts receivable 124,000 108,500
Merchandise inventory 93,000 100,750
Property and equipment 176,000 93,000
Less: Accumulated
depreciation (50,640) (26,000)
Total assets $438,060 $391,150
Liabilities:
Accounts payable $15,500 $18,600
Salaries and Wages Payable 3,100 1,550
Notes payable, long-term 77,500 93,000
Stockholders' Equity:
Common stock 144,000 124,000
Retained earnings 197,960 154,000
Total Liabilities and
Stockholders' Equity $438,060 $391,150
Income Statement
Sales $420,000
Cost of goods sold 220,000
Depreciation expense 24,640
Other expenses 105,000
Net income $70,360
Other information from the company's records includes the following:
a. Bought equipment for cash, $83,000.
b. Paid $15,500 on long-term note payable.
c. Issued new shares of common stock for $20,000 cash.
d. Cash dividends of $26,400 were declared and paid to stockholders.
e. Accounts Payable arose from inventory purchases on credit.
f. Income tax expense ($17,590) and interest expense ($4,650) were paid in full at the end of both years and are included in Other Expenses.
Required:
Prepare the Statement of Cash Flows, using the indirect method. Include any supplemental disclosures.
(Enter any deductions and cash outflows as a negative value)
Answer:
Wickersham Brothers Inc.
Statement of Cash Flows, indirect method:
Operating Activities:
Adjustment of Net Income $70,360
Add Depreciation 24,640
Cash from operations $95,000
Working capital adjustments:
Accounts receivable -$15,500
Inventory 7,750
Accounts Payable -$3,100
Salaries & Wages Payable 1,550
Income Tax expense -$17,590
Interest expense -$4,650
Cash flow from operating activities $64,460
Financing Activities:
Long-term note payable -$15,500
Common Stock $20,000
Dividend -$26,400
Cash flow from financing activities -$21,900
Investing Activities:
Equipment -$83,000
Net Cash flows ($40,440)
Explanation:
a) Balance Sheet
Assets: Current Year Prior Year
Cash $95,700 $114,900
Accounts receivable 124,000 108,500
Merchandise inventory 93,000 100,750
Property and equipment 176,000 93,000
Less: Accumulated
depreciation (50,640) (26,000)
Total assets $438,060 $391,150
Liabilities:
Accounts payable $15,500 $18,600
Salaries & Wages Payable 3,100 1,550
Notes payable, long-term 77,500 93,000
Stockholders' Equity:
Common stock 144,000 124,000
Retained earnings 197,960 154,000
Total Liabilities and
Stockholders' Equity $438,060 $391,150
b) Income Statement
Sales $420,000
Cost of goods sold 220,000
Depreciation expense 24,640
Other expenses 105,000
Net income $70,360
c) Operating Activities:
Accounts receivable -$15,500
Inventory 7,750
Accounts Payable -$3,100
Salaries & Wages Payable 1,550
Income Tax expense -$17,590
Interest expense -$4,650
Net Income $70,360
Add Depreciation 24,640
Cash from operations $95,000
d) Financing Activities:
Long-term note payable -$15,500
Common Stock $20,000
Dividend -$26,400
e) Investing Activities:
Equipment -$83,000
f) The indirect method is one of the two methods for preparing the Statement of Cash Flows. This method takes the net income and adjusts non-cash flow expenses, like depreciation. It is prepared through a reconciliation of balances, of inflows and outflows during two periods.
Lindon Company is the exclusive distributor for an automotive product that sells for $34.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $193,800 per year. The company plans to sell 21,600 units this year. Required: 1. What are the variable expenses per unit? (Round your "per unit" answer to 2 decimal places.) 2. What is the break-even point in unit sales and in dollar sales? 3. What amount of unit sales and dollar sales is required to attain a target profit of $91,800 per year? 4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $3.40 per unit. What is the company’s new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $91,800?
Answer:
1. $23.80
2. Break even Point (units) = 19,000 units and Break even Point (dollars) = $646,000
3. Unit sales to attain a target profit = 28,000 units and Dollar sales to attain a target profit = $952,000
4. Break even Point (units) = 28,500 units, Break even Point (dollars) = $969,000 and Dollar sales to attain a target profit = $1,428,000.
Explanation:
Variable Cost % = 100% - 30%
= 70%
Thus, variable expenses per unit = $34.00 × 70%
= $23.80
Break even Point is the level of activity where a firm makes neither a profit nor a loss.
Break even Point (units) = Fixed Cost / Contribution per unit
= $193,800 / ($34.00 ×30%)
= $193,800 / $10.20
= 19,000 units
Break even Point (dollars) = Fixed Cost / CM Ratio
= $193,800 / 0.30
= $646,000
Unit sales to attain a target profit = (Fixed Cost + Target Profit) / Contribution per unit
= ($193,800 + $91,800) / $10.20
= 28,000
Dollar sales to attain a target profit = (Fixed Cost + Target Profit) / CM Ratio
= ($193,800 + $91,800) / 0.30
= $952,000
When variable expenses reduce by $3.40 per unit.
Break even Point (units) = Fixed Cost / Contribution per unit
= $193,800 / ($34.00 - $23.80 - $3.40 )
= $193,800 / $6.80
= 28,500 units
Break even Point (dollars) = Fixed Cost / CM Ratio
= $193,800 / ($6.80/ $34.00)
= $969,000
Dollar sales to attain a target profit = (Fixed Cost + Target Profit) / CM Ratio
= ($193,800 + $91,800) / 0.20
= $1,428,000
At July 31, Farmer Company has this bank information: cash balance per bank $8,344; outstanding checks $804; deposits in transit $1,383; and a bank service charge $58.
Determine the adjusted cash balance per bank at July 31.
The adjusted cash balance per bank at July 31:___________.
Answer:
The adjusted balance per bank is $8923
Explanation:
Adjusted cash balance per bank
Cash balance per bank (unadjusted) 8344
(+) Deposits in transit 1383
(-) Outstanding checks (804)
Cash balance per bank (adjusted) 8923
The adjusted cash balance per bank is calculated by adjusting the transactions that do not appear on the current bank statement.
The deposits in transit is the amount of cash deposited in the bank, that will increase the bank balance, which is still in process and has not been added to the bank account as of now. Thus, we will add this amount to calculate the adjusted bank balance.
The outstanding checks amount is the amount of checks that have been issued by the business but which are yet to be presented by the recipients of checks and will result in a reduction in the bank balance. Thus, we deduct them to calculate the adjusted balance.
The bank charge is deducted by the bank itself thus we assume that it has already been deducted. So, no adjustment is made for this.
Ken just purchased new furniture for his house at a cost of $15,600. The loan calls for weekly payments for the next 7 years at an annual interest rate of 10.51 percent. How much are his weekly payments
Answer:
$60.58
Explanation:
According to the given situation the computation of weekly payments is shown below:-
Weekly payments = Loan ÷ (1 - (1 ÷ (1 + r^n))) ÷ r
= $15,600 ÷ (1 - (1 ÷ (1.0020211 ^364))) ÷ 0.00202115
= $60.58
here r = interest rate, n = time period
Therefore for computing the weekly payment we simply applied the above formula.
So, the correct answer is $60.58
Olu’s African Sculptures is preparing their budgeted financial statements for the coming year, and has accumulated the following data: Beginning-of-period balances: Cash: $65,000 Accounts Receivable: $40,000 Raw Materials Inventory: $30,000 Work in Process Inventory: $150,000 Finished Goods Inventory: $30,000 Equipment (historical value): $275,000 Accumulated Depreciation: $125,000 Accounts Payable: $45,000 Estimates for end-of-period balances: Accounts Receivable: $20,000 Raw Materials Inventory: $12,500 Work in Process Inventory: $90,000 Finished Goods Inventory: $8,000 Accumulated Depreciation: $115,000 Accounts Payable: $27,000 Budgeted activity levels for the period: Sales (# units at a sales price of $205/unit): 20,000 units Purchases of Direct Materials: $290,000 Direct Labor Wages: $170,000 Manufacturing Overhead: $210,000 Selling and Administrative Expenses: $775,000 What is the budgeted cash received from customers? Select one: a. $4,100,000 b. $4,120,000 c. $4,220,000 d. $4,320,000 PreviousSave AnswersNext
Answer:
What is the budgeted cash received from customers?
b. $4,120,000Explanation:
cash received from customers = total sales revenue + beginning accounts receivable - ending accounts receivable
total sales revenue = 20,000 x 205 = $4,100,000beginning accounts receivable = $40,000ending accounts receivable = $20,000cash received from customers = $4,100,000 + $40,000 - $20,000 = $4,120,000
: Imagine that Canada, the US, and Mexico decide to adopt a fixed exchange rate system. What would be the likely consequences of such a system for the flow of trade and investment between all three countries
Answer:
The exchange rate would benefit the U.S. and Canada more, that it would benefit Mexico.
This is because the Mexican currency: Mexican Peso, is devalued when compared to the U.S. Dollar and the Canadian Dollar. This means that Mexican exports are comparatively cheaper than American or Canadian exports, causing a great growth of Mexican manufacturing in recent decades.
In a fixed exchange rate system, Mexico would lose this competitive advantage. It would still have lower labor costs, but the amount of manufacturing that would move from the U.S. and Canada to Mexico would probably be less.
George Company has a relevant range of 150,000 units to 400,000 units. The company has total fixed costs of $527,000. Total fixed and variable costs are $622,500 at a production level of 176,000 units. The variable cost per unit at 350,000 units is
Answer: $0.54
Explanation:
Total cost = Fixed cost + Variable cost
$622,500 = $527,000 + Variable cost
Variable cost = $622,500 - $527,000
Variable cost = $95,500
Variable cost per unit will be calculated as the variable cost divided by the production unit. This will be:
= $95,500/176,000
= $0.54
The variable cost per units is $0.54.
The earnest money that must be paid with a contract is
Answer:
the earnest money that must be paid with a contract is deposit to the seller that shows the intention of completing the transaction
earnest money is the money paid to a merchant or seller to complete a contract or money paid to a merchant / seller to show good faith in the transaction.
On July 1 Olive Co. paid $7,500 cash for management services to be performed over a two-year period. Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Olive should record:
Answer:
The journal entry to record this should be:;
July 1, Year 202x, cash received as deferred revenue
Dr Cash 7,500
Cr Deferred revenue 7,500
Explanation:
Accrual accounting states that both revenues and expenses must be recorded during the periods that they actually occur, and not necessarily when any cash transfer is associated to them.
In this case, the adjusting entry for accrued revenue on December 31 should be:
December 31, year 202x, accrued revenue
Dr Deferred revenue 1,875
Cr Service revenue 1,875
Global Corporation had 50,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27. The entry to record the dividend declaration is:
Answer:
Please see answer below
Explanation:
The entry to record the dividend declaration is as shown below;
Retained earning A/c Dr (50,000 shares × $27 per share × 10%) = $135,000
To common stock dividend distributed ( 50,000 shares × $20 per share × 10%) = $100,000
To paid-in-capital in excess of par value common stock (50,000 shares × $7 per share × 10%) = $35,000
(Being dividend that is declared)
Assume the Small Components Division of Martin Manufacturing produces a video card used in the assembly of a variety of electronic products.The highest acceptable transfer price for the divisions is the Small Components Division's
Answer:
Minimum Transfer Price.
Explanation:
The price that is acceptable by Small Components Division when transferring to the internal division must cover the variable manufacturing cost (less internal savings) plus opportunity cost incurred.
This price is known as the Minimum Transfer Price for the Transferring Division (Small Components Division) and would never accept a transfer with any price lower than this.
Assume that ExxonMobil uses a standard cost system for each of its refineries. For the Houston refinery, the monthly fixed overhead budget is $8,000,000 for a planned outputs of 5,000,000 barrels. For September, the actual fixed cost was $8,750,000 for 5,100,000 barrels.
Required
a. Determine the fixed overhead budget variance.
b. If fixed overhead is applied on a per-barrel basis, determine the volume variance.
c. Provide formulas and an explanation.
Answer:
a. Fixed overhead budget variance = Budgeted fixed overhead - Actual fixed overhead
= $8,000,000 - $8,750,000
= $750,000 Unfavorable
b. Predetermined overhead rate per barrel = $8,000,000 / 5,000,000
= $1.60 per barrel
Fixed overhead applied = 5,100,000 * $1.60
= $8,160,000
Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead
= $8,160,000 - $8,000,000
= $160,000 Favorable
c. Fixed overhead budget variance = Budgeted fixed overhead - Actual fixed overhead
Predetermined overhead rate per barrel = Budgeted fixed overhead / Planned outputs
Fixed overhead volume variance = Fixed overhead applied - Budgeted fixed overhead
The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves determining whether the proposed diversification move Group of answer choices provides the company with additional resource strengths. provides additional ways to build the entrepreneurial skills of the company's senior managers. spreads stockholders' risks across a greater number of lines of business. has competitively valuable value chain match-ups with the company's present businesses such that its businesses can perform better together than apart. has good potential for increasing the company's rate of return on invested capital.
Answer: Has competitively valuable value chain match-ups with the company's present businesses such that its businesses can perform better together than apart.
Explanation:
The better-off test of diversification is that the company must gain a return that is higher than incremental growth. Incremental growth is usually defined a 1 + 1 = 2 formula and this test argues that Diversification must provide more than this such that the company achieves synergistic growth ( 1 + 1 = 3) which is what happens when different entities work better together than alone.
Diversification should therefore be into an area that will be able to match-up with the company's present businesses such that its businesses can perform better together than apart and produce even greater returns.
4. under rule utilitarianism the notion that if an action increases utility at one particular
moment, it does not show that:
Answer:
Moral decision
Explanation:
Utilitarianism is the notion of ethics that is an action is considered good if it results in the greatest good of all the others. It considers the single action and decided on that basis whether the certain thing is right or wrong. The utility increases at one particular action and when the other action arrives its utility diminishes. It does not show the moral decision that has been taken for the other reasons.
Holmes Company produces a product that can be either sold as is or processed further. Holmes has already spent $96,000 to produce 1,375 units that can be sold now for $89,500 to another manufacturer. Alternatively, Holmes can process the units further at an incremental cost of $290 per unit. If Holmes processes further, the units can be sold for $440 each. Should Holmes sell the product now or process it further
Answer:
Yes
Explanation:
The computation is shown below:
Particulars Sales As Is Process further Incremental Accounting
Sales $89,500 $605,000 $515,500
(1,375 units × $440)
Less:
Additional Process costs $398,750 $398,750
(1,375 units × $290)
Total $89,500 $206,250 $116,750
Based on the incremental income, Holmes should process it further.
Bardell, Inc. prepared its statement of cash flows for the year. The following information is taken from that statement: Net cash provided by operating activities $ 30,500 Net cash provided by investing activities 5,800 Cash balance, beginning of year 7,400 Cash balance, end of year 12,300 What is the amount of net cash provided by (used in) financing activities?
Answer:
the a nswwr rwo uld be7 6879
Explanation:
Landow Company uses variable costing for internal purposes and wants to restate income to that of absorption costing for external reporting purposes. Landow's income under variable costing is $630,000. Fixed production cost in ending inventory is $120,000 and $85,000 in beginning inventory. What is Landow's income under absorption costing?
Answer:
$635,000
Explanation:
The computation of the net income under absorption costing is shown below:
= Income under variable costing + fixed production cost in ending inventory - beginning inventory
= $630,000 + $120,000 - $85,000
= $635,000
By adding the fixed cost and deduct the beginning inventory to the variable costing income we can easily calculate the absorption costing income
Which of the following could be considered barriers to entry that would prevent potential competitors from entering a monopoly market?
Select the two correct answers below.
a) patent and copyright laws
b) few workers in the industry
c) extremely high demand for a certain product
d) ownership of a critical factor of production
Answer:
a) patent and copyright laws
d) ownership of a critical factor of production
Explanation:
a monopoly is when there is only one firm operating in an industry.
the different reasons why monopoly exists are :
ownership of a key resource. this is natural monopoly
high start up cost
legal barriers - patent and copyright laws
Economies of scale.
Give one example of how you think the Law of One Price may hold.
Answer:
The answer is below
Explanation:
The law of one price may hold, when there is eliminatination of price differences through arbitrage opportunities between markets.
For example, considering the value of two currencies e.g Dollar and Pound is equal when a basket of identical goods is priced the same in both countries. This ensures that buyers have the same purchasing power across global markets.
You are going to deposit $26,000 today. You will earn an annual rate of 6.1 percent for 11 years, and then earn an annual rate of 5.5 percent for 14 years. How much will you have in your account in 25 years?
Answer:
Total value in the account after 25 years = $105,530.26
Explanation:
The value of an amount invested at a certain rate of return for certain number of years where interest compounded annually is known as the future value.
The future value of an investment can be determined using the future value formula. This formula is stated below:
FV = PV × (1+r)^(n)
FV - Future Value , PV- Present Value, r-rate of return, n- number of years
For the first compounding, 6.1% for 11 years
PV - 26,000, r- 6.1% and n- 11
FV = 26,000 × (1.061)^11 = 49,870.367
For the second round of compounding at 5.5% for 14 years
PV - 49,870.367 , r -5.5%, n- 14
FV = 49,870.367× 1.055^14 = 105,530.259
Total value in the account after 25 years = $105,530.26
You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share. a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position?
Answer:
We will provide 2,500 dollars in cash or securities to realize the transaction
Explanation:
100 shares x $50 per share = $ 5,000
The total amount of the operation is for 5,000 dollars. we are requiresd to provide a safety of 50% of this value
5,000 dollars x 50% margin requirement = 2,500 dollars
A 5-year corporate bond yields 7.0%. A 5-year municipal bond (tax exempt bond) of equal risk yields 5.0%. Assume that the state tax rate is zero. At what federal tax rate are you indifferent between the two bonds?
Answer:
The tax rate is approximately(rounded to a whole) 29%
Explanation:
The federal tax that would make an investor indifferent between the 5-year corporate bond and the 5-year municipal bond can be derived by equating the return on the former to the taxable return of the latter as below:
5%=7%*(1-t)
where the t is the unknown tax rate
Note that the return on 5-year corporate bond is taxable while the return on the municipal bond is tax-free
5%=7%*(1-t)
5%/7%=1-t
0.7143 =1-t
t=1-0.7143
t=29%
The development and application of mrp depended upon two developments (1) the recognition of the difference between independent and dependent demand, and (2):________
a. Computers
b. Development of the EOQ model
c. Inventory control systems
d. Blanket purchase ordersE. the internet
Answer:
a. Computers
Explanation:
The MRP refers to the material requirement planning with respect to production, scheduling, controlling of an inventory. It works is to transform the master schedule to the detailed schedule in order to purchase the raw material.
It can be divided into two components i.e independent and dependent demand. The independent demand is held for the finished goods and the dependent demand is for the components
Now for developing the mrp depend upon the recognition between the dependent and independent demand and the second one is computer
Consider a service company that provides carpet cleaning and uses straight-line depreciation. Classify the cost of the depreciation on the carpet cleaning machines.
a. Fixed
b. Indirect
Answer:
Both :
a. Fixed and,
b. Indirect
Explanation:
The depreciation expense on production machinery form part of the product or service cost.
The cost however, can not be traced to the product or service that is why it is an Indirect cost as opposed to the direct costs which can be traced directly on the product or service.
Straight line method charges a fixed amount of depreciation thus the depreciation is a fixed charge.
Item9 5 points eBookPrintReferences Check my work Check My Work button is now enabledItem 9Item 9 5 points Here is some price information on Fincorp stock. Suppose that Fincorp trades in a dealer market. Bid Ask 55.25 55.50 a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed?
Answer:
$55.50
Explanation:
Given that
Bid price = $55.25
Ask price = $55.50
The bid price refers to the maximum price that buyer could able to pay for a good
While the ask price refers to the minimum price that seller could take it from the buyer
Based on the above information,
The price at which the trade is executed is equivalent to the ask price i.e $55.50
On April 30, Victor Services had an Accounts Receivable balance of $37,800. During the month of May, total credits to Accounts Receivable were $73,600 from customer payments. The May 31 Accounts Receivable balance was $31,000. What was the amount of credit sales during May?
Answer:
The answer is $66,800
Explanation:
Beginning accounts receivable balance ---$37,800
Ending accounts receivable balance -----$31,000
Total credits to Accounts Receivable------ $73,600
Credit sales = (Total credits to Accounts Receivable + Ending accounts receivable balance) - Beginning accounts receivable balance
($73,600 + $31,000) - $37,800
$104,600 - $37,800
= $66,800
The following data are the actual results for Marvelous Marshmallow Company for August:
Actual output 8,000 cases
Actual variable overhead $ 427,000
Actual fixed overhead $ 149,000
Actual machine time 33,400 machine hours
Standard cost and budget information for Marvelous Marshmallow Company follows:
Standard variable-overhead rate $ 12.00 per machine hour
Standard quantity of machine hours 4 hours per case of marshmallows
Budgeted fixed overhead $ 144,000 per month
Budgeted output 12,000 cases per month
Required:
Compute the following variances:
a Variable-overhead spending variance
b. Variable-overhead efficiencv variance
c. Fixed-overhead budget variance
d. Fixed-overhead volume variance
Answer:
a. $26,200 Unfavorable
b. $16,800 Unfavorable
c. $ 5,000 Unfavorable
d. $48,000 Unfavorable
Explanation:
a Variable-overhead spending variance
Variable-overhead spending variance = Budgeted Variable overheads at actual hours worked - Actual variable overheads
= (33,400 × $ 12.00) - $ 427,000
= $400,800 - $ 427,000
= $26,200 Unfavorable
b. Variable-overhead efficiency variance
Variable-overhead efficiency variance = (Actual Output × Standard hour × Standard rate) - (Actual hours × Standard rate per hour)
= (8,000 × 4 × $ 12.00) - (33,400 × $ 12.00)
= $384,000 - $400,800
= $16,800 Unfavorable
c. Fixed-overhead budget variance
Fixed-overhead budget variance = Actual Fixed Overheads - Budgeted Fixed Overheads
= $ 149,000 - $ 144,000
= $ 5,000 Unfavorable
d. Fixed-overhead volume variance
Fixed-overhead volume variance = Fixed overheads at Budgeted Production - Budgeted Fixed Overheads
= ($ 144,000 / 12,000 × 8,000) - $ 144,000
= $96,000 - $144,000
= $48,000 Unfavorable