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    Variance Analysis - Lido Company

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    1.Lido Company's standard and actual costs per unit for the most recent period, during which 400 units were actually produced, are given below: Remember, you need to compute these variances based on the 400 units which were actually produced.


    From the foregoing information, compute the following variances. Show whether the variance is favorable (F) or unfavorable (U):

    a. Materials price variance.

    b. Materials quantity variance.

    c. Direct labor rate variance.

    d. Direct labor efficiency variance.

    e. Variable overhead rate variance.

    f. Variable overhead efficiency variance.

    2. The Winter Products Division of American Sports Corporation produces and markets two products for use in the snow: Sleds and Saucers. The following data were gathered on activities last month:


    Prepare a segmented income statement in the contribution format for last month.

    3. Eber Wares is a division of a major corporation. The following data are for the latest year of operations:

    Required: For each question below, find the formula, and then substitute the appropriate numbers in the formula to get the solution.

    a. What is the division's margin?

    b. What is the division's turnover?

    c. What is the division's return on investment (ROI)?

    d. What is the division's residual income?

    4. Rackett Corporation is considering two alternatives that are code-named M and N. Costs associated with the alternatives are listed below:


    a. Which costs are relevant and which are not relevant in the choice between these two alternatives?

    b. What is the differential cost between the two alternatives?

    5. Janeiro Skate, Inc. currently manufactures the wheels that it uses for its in-line skates. The annual costs to manufacture the 150,000 wheels needed each year are as follows:

    Kasba Rubber Company has offered to provide Janeiro with all of its annual wheel needs for $3.50 per wheel. If Janeiro accepts this offer, 75% of the fixed overhead above could be totally eliminated. Also, Janeiro would be able to rent out the freed up space and could generate $72,000 of income annually.


    Based on this information, would Janeiro be better off to continue making the wheels or to buy them from Kasba? SHOW YOUR COMPUTATIONS.

    6. (Ignore income taxes in this problem.) Ursus, Inc., is considering a project that would have a ten-year life and would require a $1,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows:

    All of these items, except for depreciation of $100,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 12%.

    Required: Based only on cash flow information, compute the following:

    a. Compute the project's net present value.

    b. Compute the project's internal rate of return to the nearest whole percent.

    c. Compute the project's payback period.

    d. Compute the project's simple rate of return.

    7. Baroche Inc. uses the weighted-average method in its process costing system. The following data concern the operations of the company's first processing department for a recent month.


    Using the weighted-average method:

    a. Determine the equivalent units of production for materials and conversion costs.

    b. Determine the cost per equivalent unit for materials and conversion costs.

    c. Determine the cost of units transferred out of the department during the month.

    d. Determine the cost of ending work in process inventory in the department.

    8. The following cost data relate to the manufacturing activities of the Kamas Company during the most recent year:

    The company uses a predetermined overhead rate to charge overhead cost to production. The rate for the year just completed was $4.00 per machine-hour; a total of 6,000 machine-hours were recorded for the year.


    a. Compute the amount of underapplied or overapplied overhead cost for the year just ended.

    b. Prepare a schedule of cost of goods manufactured for the year.

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    Solution Summary

    The solution performs variance analsysis for Lido Company.