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Flexible Budgets, ROI & Residual Income

1. Barrick Company has established a flexible budget for manufacturing overhead based on direct labor-hours. Total budgeted costs at 200,000 direct labor-hours are as follows:
Variable costs (total):
Packing supplies $120,000
Indirect labor $180,000
Fixed costs (total):
Utilities $100,000
Rent $ 40,000
Insurance $ 20,000

At an activity level of 190,000 direct labor-hours, the flexible budget for indirect labor costs would be:

$171,000
$180,000
$114,000
$270,000

2. The North Division of the Lyman Company reported the following data for last year:
Sales $900,000
Operating expenses 700,000
Interest expense 50,000
Tax expense 60,000
Stockholders' equity 250,000
Average operating assets 500,000
Minimum required rate of return 14%

The return on investment last year for the North Division was:
18%
40%
36%
80%

3. The residual income for the North Division last year was:
$130,000
$126,000
$90,000
$70,000

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Solution attaches a Word document showing how to answer 3 questions on labor costs, ROI and residual income.

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