See attached file.
1. Compare and contrast standards and budgets.
2. Compute the variable overhead total, spending and efficiency variances for manufacturing overhead given the following information. Actual hours x1000, standard hours 900, standard rate $1.5/hours and actual rate $1.25/hour.
3. Given the following information compute the ROI and intermediate values using the DuPont approach. What would be the impact on ROI if sales increase by 5%?
? Based on a 5% increase in sales without any increase in operating assets results in an increase to net operating income of 25%, up $50,000 to $250,000. As such, ROI jumps up to 5.62% from 4.49% and margin is improved to 23.81% (up 3.81 percentage points). Margin has improved here as sales increased and assuming operating expenses remained constant. Turnover is slightly higher due to the increase in sales and assuming average operating assets remained constant.
Selling Expense 200,000
Administrative Expense 100,000
Plant & Equipment 1,500,000
Other Assets 2,300,000
Long term debt 5,000,000
4. Create a cash budget given the following information. How would we deal with the result (whether it is a deficit or surplus)?
? Given the information provided the cash budget results in a cash excess. As such the excess funds could be utilized to repay funds borrowed in previous periods (and current period). Additionally, if no outstanding debt exits (or the company chooses to pay a portion of debt outstanding) then the excess funds could be invested in investments/securities or re-invested into the company (increase its equity base or be applied to asset purchases, etc.). Ultimately the excess cash may be utilized by the company in anyway it chooses, however the excess cash should improve the company's overall position (in reference to liquidity (more cash or liquid investments if company invests excess cash) and leverage (reduction of debt in company retires or pay downs a potion of existing debt outstanding with excess cash).
Beginning cash 50,000
*Depreciation & amortization are excluded; non-cash items.
This solution is comprised of a detailed explanation to compare and contrast standards and budgets, compute the variable overhead total, spending and efficiency variances for manufacturing overhead, compute the ROI and intermediate values using the DuPont approach, and create a cash budget.