3 w

 1.

 

 

 

Exercise 8-13 Basic Payback Period and Simple Rate of Return Computations [LO8-1, LO8-6]

A piece of laborsaving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow:

 

Purchase cost of the equipment	$	682,000
Annual cost savings that will be provided by the equipment	$	110,000
Life of the equipment		10	years

 

Required:

1-a. Compute the payback period for the equipment.

2.

 

 

 

Problem 10-22 Performance Report for a Nonprofit Organization [LO10-1, LO10-4, LO10-6]

The St. Lucia Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month.

A report prepared by a government official comparing actual costs to budgeted costs for the blood bank appears below. Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.

 

St. Lucia Blood Bank Cost Control Report For the Month Ended September 30
	Actual Results	Planning Budget	Variances
Liters of blood collected		880		700
Medical supplies	$	10,505	$	8,365	$	2,140	U
Lab tests		12,359		10,185		2,174	U
Equipment depreciation		2,020		1,800		220	U
Rent		1,300		1,300		0
Utilities		286		260		26	U
Administration		14,245		14,100		145	U
Total expense	$	40,715	$	36,010	$	4,705	U

 

The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget.

The following cost formulas were used to construct the planning budget:

 

	Cost Formulas
Medical supplies	$11.95q
Lab tests	$14.55q
Equipment depreciation	$1,800
Rent	$1,300
Utilities	$260
Administration	$12,700 + $2.00q

    

Required:

1. Complete the performance report for September using the flexible budget approach. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations and round your final answers to nearest whole dollar.)

3.

 

 

 

Problem 11-14 Basic Variance Analysis [LO11-1, LO11-2, LO11-3]

Becton Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex, is prepared using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows:

 

	Standard Quantity	Standard Price or Rate	Standard Cost
Direct materials	2.20 ounces	$	25.00	per ounce	$	55.00
Direct labor	0.50 hours	$	15.00	per hour		7.50
Variable manufacturing overhead	0.50 hours	$	3.00	per hour		1.50
					$	64.00

 

 

During November, the following activity was recorded relative to production of Fludex:

 

a. Materials purchased, 12,000 ounces at a cost of $282,000.

b. There was no beginning inventory of materials; however, at the end of the month, 2,750 ounces of material remained in ending inventory.

c. The company employs 25 lab technicians to work on the production of Fludex. During November, they worked an average of 110 hours at an average rate of $11.50 per hour.

d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $2,400.

e. During November, 4,100 good units of Fludex were produced .

 

Required:

1. For direct materials:

 

a. Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Exercise 12-9 Return on Investment (ROI) and Residual Income Relations [LO12-1, LO12-2]

A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to nearest whole number.)