$118,080 – $122,750* = $4,670 Favorable

*23,030 x $5.33 = $122,750

Estimated annual cash outflows -40,120

Net annual cash flow $40,370

Cash payback period = $116,300/$40,370 = 2.88 years.

( AH x AR ) – ( SH x SR )

(42,300 x $11.18) – (41,600* x $11.00)

$472,914 – $457,600 = $15,314 Unfavorable

/*13,000 x 3.20 = 41,600

(b) Labor price variance:

( AH x AR ) – ( AH x SR )

(42,300 x $11.18) – (42,300 x $11.00)

$472,914 – $465,300 = $7,614 Unfavorable

Labor quantity variance:

( AH x SR ) – ( SH x SR )

(42,300 x $11.00) – (41,600 x $11.00)

$465,300 – $457,600 = $7,700 Unfavorable

(c) Labor price variance:

( AH x AR ) – ( AH x SR )

(42,300 x $11.18) – (42,300 x $11.32)

$472,914 – $478,836 = $5,922 Favorable

Labor quantity variance:

( AH x SR ) – ( SH x SR )

(42,300 x $11.32) – (45,500 x $11.32)

$478,836 – $515,060 = $36,224 Favorable

*3.50 × 13,000= 45,500

Overhead incurred for 48,800 actual direct labor hours worked$443,900

Overhead rate (variable $8; fixed $1) at normal capacity of 52,600 direct labor hours $9

Standard hours allowed for work done 49,530

Compute the total overhead variance.

Actual Overhead

–

Overhead Budgeted

=

$443,900 – $445,770* = $1,870 Favorable

*(49,530 x $9) = $445,770

Average operating assets $2,996,800

Controllable margin $749,200

Minimum rate of return 8 %

Compute the return on investment and the residual income.

÷

Average Operating Assets

=

ROI

$749,200

÷ $2,996,800

= 25%Controllable Margin

– (Minimum Rate of Return x Average Operating Assets)

= Residual Income

$749,200 – (8% x $2,996,800)

= Residual Income

$749,200- $239,744 = $509,456

Cash Flows x 9% Discount

Factor =Present

Value

Present value of net annual cash flows $30,600×5.53482 =$169,365

Present value of salvage value 0×.50187=0

169,365

-Capital investment 181,700

Net present value ($12,335 )

By tracing across on the 6-year row, we see that the discount factor for 10% is 4.35526. Thus, the internal rate of return on this project is approximately 10%. Since this is above the company’s required rate of return, the project should be accepted.

If the equipment is purchased, the annual rate of return expected on this equipment is

Initial investment $400,000 $600,000

Annual net income 30,000 46,000

Net annual cash inflow 110,000 146,000

Estimated useful life 5 years 6 years

Salvage value -0- -0-

The cash payback period for Project Soup is?

Net annual cash inflow 20,000

Net present value 36,224

Salvage value 10,000

Useful life 10 yrs.

The potential investment’s profitability index is?

Projects

A B C

Initial investment $80,000 $120,000 $160,000

Net cash flows 90,000 110,000 200,000

How many of the projects are acceptable?

Present Value of an Annuity of 1 at 9% is 2.531

Present Value

of 1 at 8% is .681 and 3.993

Sales $750,000

Contribution margin 135,000

Total fixed costs 90,000

Average total operating assets 300,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by $30,000, assuming fixed costs are held constant?

Average operating assets $600,000

Controllable margin 60,000

Contribution margin 150,000

Minimum rate of return 8%

How much is Halle’s residual income?

Edgar, Inc.’s materials quantity variance is

Materials Price Variance 300

Accounts Payable 9,300

Actual rate $10

Standard hours 11,000

Actual hours 10,000

Direct labor price variance—unfavorable $4,000

What was the standard rate for August?

Work In Process Inventory