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    Variances; Grater segmented income statement; division ROI

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    Photos Inc. has a standard cost system in which it applies overhead to products based on the standard direct labor hours allowed for the actual output of the period. Data concerning the most recent year appear below:
    Total budgeted fixed overhead cost for the year $250,000
    Actual fixed overhead cost for the year $265,000
    Budgeted standard direct labor hours 40,000
    Actual direct labor hours 41,000
    Standard direct labor hours allowed for actual output 40,800

    a. Compute the fixed portion of the predetermined overhead rate for the year. Show computations.
    b. Compute the fixed budget and volume variances. Show computations.

    Grater Inc. sells product A and product B. Revenue and cost information relating to the products follow:
    A B
    Selling price per unit $48.00 $65.00
    Variable Expenses per unit $24.50 $29.20
    Traceable fixed expenses per year$144,000 $101,500

    Common fixed expenses in the company total $390,000 annually. Last year the company produced and sold 10,000 of product A and 15,000 of Product B.

    Prepare a contribution format income statement for the year segmented by product lines. Show details clearly.

    Selected sales and operating data for three divisions of three different companies are given below:

    Division X Division Y Division Z
    Sales $900,000 $750,000 $600,000
    Average operating assets $600,000 $150,000 $200,000
    Net operating income $54,000 $30,000 $10,000
    Minimum required rate of return 10% 16% 8%

    a. Compute the return on investment (ROI) for each division using the formula stated interms of margin and turnover. Show computations.
    b. Compute the residual income for each division. Show computations.
    Under which of these methods would they accept an opportunity with a 15 percent return. Show computations and details.

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    Solution Preview

    See attached file.

    Answer to question no:1

    a. Compute the fixed portion of the predetermined overhead rate for the year. Show computations
    Predetermined overhead rate
    Fixed overhead rate Budgeted fixed overhead/budgeted activity 6.25
    Budgeted fixed overhead 250000
    Budgeted activity 40000
    Fixed overhead budget variance
    Budgeted fixed cost 250000
    Actual fixed ...

    Solution Summary

    The grater segmented income statement, division ROI and variances are examined.